20.You invest in a stock that costs $45.50 per share.It pays a cash dividend during the year of $1.20 and you expect its price to be $49 at year's end.What is your expected rate of return if you do not sell the stock at the end of the year? (a)2.64% (b)7.69% (c)10.33% (d-5.05% Answer:(c) 21.You invest in a stock that costs $45.50 per share.It pays a cash dividend during the year of $1.20 and you expect its price to be $49 at year's end.What is your realized rate of return if the stock's price is actually $42 at year's end? (a)-5.05% (b)18.02% (c)10.33% (d5.05% Answer:(a) 22.The the standard deviation,the the volatility of the rate of return. (a)higher,lower (b)lower,higher (c)higher,higher (d)none of the above Answer:(c) 23. is an investment strategy that seeks to match the returns of a specified stock market index. (a)Indexing (b)Benchmarking (c)Replicating (d)Diversifying Answer:(a) 2-6
2-6 20. You invest in a stock that costs $45.50 per share. It pays a cash dividend during the year of $1.20 and you expect its price to be $49 at year’s end. What is your expected rate of return if you do not sell the stock at the end of the year? (a) 2.64% (b) 7.69% (c) 10.33% (d) –5.05% Answer: (c) 21. You invest in a stock that costs $45.50 per share. It pays a cash dividend during the year of $1.20 and you expect its price to be $49 at year’s end. What is your realized rate of return if the stock’s price is actually $42 at year’s end? (a) –5.05% (b) 18.02% (c) 10.33% (d) 5.05% Answer: (a) 22. The ________ the standard deviation, the ________ the volatility of the rate of return. (a) higher, lower (b) lower, higher (c) higher, higher (d) none of the above Answer: (c) 23. ________ is an investment strategy that seeks to match the returns of a specified stock market index. (a) Indexing (b) Benchmarking (c) Replicating (d) Diversifying Answer: (a)
24.Suppose the risk-free nominal interest rate on a one-year U.S.Treasury bill is 7%per year and the expected rate of inflation is 3%per year.What is the expected real rate of return on the T-bill? (a)4% (b)3.88% (c)1.34% (d3.74% Answer:(b) 25.Suppose the risk-free nominal interest rate on a one-year U.S.Treasury bill is 6%per year and the expected rate of inflation is 4%per year.What is the expected real rate of return on the T-bill? (a)2% (b)5% (c)1.92% (d1.89% Answer:(c) 26.Suppose that the real rate of interest on a TIPS is 4.5%per year and the expected rate of inflation in the U.S.is 5%per year.What is the expected nominal rate of return on these bonds? (a)0.476% (b)4.75% (c)9.73% (d9.75% Answer:(c) 27.Currently you have a bank account containing $6,000,which earns interest at a rate of 4%per year. You also have an unpaid balance on your credit card of $3,000 on which you are paying an interest rate of 18%per year.If the time frame is one year,the arbitrage opportunity you face is: (a)$420 (b)$540 (c)$120 (d$300 Answer:(a) 2-7
2-7 24. Suppose the risk-free nominal interest rate on a one-year U.S. Treasury bill is 7% per year and the expected rate of inflation is 3% per year. What is the expected real rate of return on the T-bill? (a) 4% (b) 3.88% (c) 1.34% (d) 3.74% Answer: (b) 25. Suppose the risk-free nominal interest rate on a one-year U.S. Treasury bill is 6% per year and the expected rate of inflation is 4% per year. What is the expected real rate of return on the T-bill? (a) 2% (b) 5% (c) 1.92% (d) 1.89% Answer: (c) 26. Suppose that the real rate of interest on a TIPS is 4.5% per year and the expected rate of inflation in the U.S. is 5% per year. What is the expected nominal rate of return on these bonds? (a) 0.476% (b) 4.75% (c) 9.73% (d) 9.75% Answer: (c) 27. Currently you have a bank account containing $6,000, which earns interest at a rate of 4% per year. You also have an unpaid balance on your credit card of $3,000 on which you are paying an interest rate of 18% per year. If the time frame is one year, the arbitrage opportunity you face is: (a) $420 (b) $540 (c) $120 (d) $300 Answer: (a)