A stock had returns of 12 percent, 16 percent, 10 percent, 19 percent, 15 percent, and -6 percent over the last six years.

A stock had returns of 12 percent, 16 percent, 10 percent, 19 percent, 15 percent, and -6 percent over the last six years. What is the geometric average return on the stock for this period?    A.  10.90 percent B.  10.68 percent C.  13.56 percent D.  14.76 percent E.  15.01 percent Geometric average = (1.12 × 1.16 × 1.10 × 1.19 × 1.15 × 0.94)1/6 - 1 = 10.68 percent

92.

Assume that the returns from an asset are normally distributed. The average annual return for the asset is 18.1 percent and the standard deviation of the returns is 32.5 percent. What is the approximate probability that your money will triple in value in a single year?    A.  less than 0.5 percent B.  less than 1 percent but greater than 0.5 percent C.  less then 2.5 percent but greater than 1 percent D.  less than 5 percent but greater than 2.5 percent E.  less than 10 percent but greater than 5 percent The upper tail of the 99 percent range = 0.181 + (3 × 0.325) = 1.156 = 115.6 percent, which is less than the 200 percent required to triple your money. Thus, the probability of occurrence is less than 0.5 percent.

93.

Over a 30-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 percent. Using Blume's formula, what is your best estimate of the future annual returns over the next 5 years?    A.  11.18 percent B.  12.27 percent C.  11.84 percent D.  12.66 percent E.  12.46 percent

A stock has returns of 18 percent, 15 percent, -21 percent, and 6 percent for the past four years

A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?    A.  0.1 percent B.  0.5 percent C.  1.0 percent D.  2.5 percent E.  5.0 percent Lower bound of 99 percent range = 0.13 - (3 × 0.21) = -50 percent Probability of losing 50 percent or more in any one year is 0.5 percent.

72.

A stock has returns of 18 percent, 15 percent, -21 percent, and 6 percent for the past four years. Based on this information, what is the 95 percent probability range of returns for any one given year?    A.  -13.56 to 20.56 percent B.  -24.60 to 31.80 percent C.  -31.00 to 40.00 percent D.  -47.68 to 54.68 percent E.  -71.73 to 71.73 percent Average return = (0.18 + 0.15 - 0.21 + 0.06)/4 = 0.045 σ = (0.18 - 0.045)2 + (0.15 - 0.045)2 + (-0.21 - 0.045)2 + (0.06 - 0.045)2] = .177482 95% probability range = 0.045 ± (2 × 0.177482) percent = -31.00 to 40.00 percent

73.

Your friend is the owner of a stock which had returns of 25 percent, -36 percent, 1 percent, and 16 percent for the past four years. Your friend thinks the stock may be able to achieve a return of 50 percent or more in a single year. Based on these returns, what is the probability that your friend is correct?    A.  less than 0.5 percent B.  greater than 0.5 percent but less than 1.0 percent C.  greater than 1.0 percent but less than 2.5 percent D.  greater than 2.5 percent but less than 16 percent E.  greater than 16.0 percent Average return = (0.25 - 0.36 + 0.01 + 0.16)/4 = 0.015 σ = √[1/(4 - 1)] [(0.25 - 0.015)2 + (-0.36 - 0.015)2 + (0.01 - 0.015)2 + (0.16 - 0.015)2] = 0.2689 Upper end of 68 percent range = 0.015 + (1 × 0.2689) = 28.39 percent Upper end of 95 percent range = 0.015 + (2 × 0.2689) = 55.28 percent The probability of earning at least 50 percent in any one year is greater than 2.5 percent but less than 16 percent.

A stock is currently selling for $56 a share. The risk-free rate is 3 percent and the standard deviation is 18 percent

A stock is currently selling for $56 a share. The risk-free rate is 3 percent and the standard deviation is 18 percent. What is the value of d1 of a 9-month call option with a strike price of $57.50?    A.  -0.01506 B.  0.05271 C.  0.05740 D.  0.06420 E.  0.06752

65.	A stock is currently selling for $36 a share. The risk-free rate is 3.8 percent and the standard deviation is 27 percent. What is the value of d1 of a 9-month call option with a strike price of $40?    A.  -0.21872 B.  -0.21179 C.  -0.21047 D.  -0.20950 E.  -0.20356

66.	The delta of a call option on a firm's assets is 0.767. This means that a $75,000 project will increase the value of equity by:    A.  $38,350. B.  $45,336. C.  $57,525. D.  $64,627. E.  $65,189. Increase in equity value = $75,000 × 0.767 = $57,525

67.	The delta of a call option on a firm's assets is 0.727. This means that a $195,000 project will increase the value of equity by:    A.  $141,765. B.  $180,219. C.  $211,481. D.  $264,909. E.  $268,226. Increase in equity value = $195,000 × 0.727 = $141,765

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average

1.

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which one of the following terms refers to the difference between these two rates of return?    A.  risk premium B.  geometric return C.  arithmetic D.  standard deviation E.  variance Refer to section 12.3

2.

Which one of the following best defines the variance of an investment's annual returns over a number of years?    A.  The average squared difference between the arithmetic and the geometric average annual returns. B.  The squared summation of the differences between the actual returns and the average geometric return. C.  The average difference between the annual returns and the average return for the period. D.  The difference between the arithmetic average and the geometric average return for the period. E.  The average squared difference between the actual returns and the arithmetic average return. Refer to section 12.4

3.	Standard deviation is a measure of which one of the following?    A.  average rate of return B.  volatility C.  probability D.  risk premium E.  real returns Refer to section 12.4