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Question;10.3 Historical Returns of Stocks and Bonds;1) Which of the;following statements is false?;A) The expected;return is the return is the return that actually occurs over a particular time;period.;B) If you hold;the stock beyond the date of the first dividend, then to compute you return you;must specify how you invest any dividends you receive in the interim.;C) The average;annual return of an investment during some historical period is simply the;average of the realized returns for each year.;D) The realized;return is the total return we earn from dividends and capital gains, expressed;as a percentage of the initial stock price.;2) Which of the;following statements is false?;A) We measure;the degree of estimation error statistically through the standard error of the;estimate.;B) When focusing;on the returns of a single security, its common practice to assume that all;dividends are immediately invested at the risk-free rate.;C) We estimate;the standard deviation or volatility as the square root of the variance.;D) We estimate;the variance by computing the average squared deviation from the average;realized return.;3) Which of the;following statements is false?;A) The standard;error provides an indication of how far the sample average might deviate from;the expected return.;B) The 95%;confidence interval for the expected return is defined as the Historical;Average Return plus or minus three standard errors.;C) We can use a;security's historical average return to estimate its actual expected return.;D) The standard;error is the standard deviation of the average return.;4) Which of the;following statements is false?;A) The;compounded geometric average return is most often used for comparative;purposes.;B) We should use;the arithmetic average return when we are trying to estimate an investment's;expected return over a future horizon based on its past performance.;C) The geometric;average return will always be above the arithmetic average return and the;difference grows with the volatility of the annual returns.;D) The geometric;average return is a better description of the long-run historical performance;of an investment.;5) If a stock;pays dividends at the end of each quarter, with realized returns of R1, R2, R3, and R4 each quarter, then the annual realized return;is calculated as;A) Rannual=;B) Rannual= (1 + R1)(1 + R2)(1 + R3)(1 + R4);C) Rannual= (1 + R1)(1 + R2)(1 + R3)(1 + R4) - 1;D) Rannual= R1 + R2 + R3 + R4;Use the table;for the question(s) below.;Consider the;following Price and Dividend data for General Electric Company;Date;Price;($);Dividend;($);December 31, 2008;$14.64;January 26, 2009;$13.35;$0.10;April 28, 2009;$9.14;$0.10;July 29, 2009;$10.74;$0.10;October 28, 2009;$8.02;$0.10;December 30, 2009;$7.72;6) Assume that;you purchased General Electric Company stock at the closing price on December;31, 2008 and sold it after the dividend had been paid at the closing price on;January 26, 2009. Your dividend yield;for this period is closest to;A) -8.15%;B) 0.75%;C) 0.70%;D) -8.80%;7) Assume that;you purchased General Electric Company stock at the closing price on December;31, 2008 and sold it after the dividend had been paid at the closing price on;January 26, 2009. Your capital gains;rate (yield) for this period is closest to;A) 0.75%;B) 0.70%;C) -8.80%;D) -8.15%;8) Assume that;you purchased General Electric Company stock at the closing price on December;31, 2008 and sold it after the dividend had been paid at the closing price on;January 26, 2009. Your total return rate;(yield) for this period is closest to;A) 0.75%;B) -8.80%;C) 0.70%;D) -8.15%;9) Assume that;you purchased Ford Motor Company stock at the closing price on December 31;2008 and sold it at the closing price on December 30, 2009. Your realized annual return for the year 2009;is closest to;A) -45.1%;B) -44.5%;C) -48.5%;D) -47.3%

Paper#51040 | Written in 18-Jul-2015

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