1. A complete portfolio holds _______________.

   a.		all risky assets
   b.		all risk-free assets
   c.		risky and risk-free assets
   d.		bonds and stocks

2. Suppose stock ABC has an average return of 12% and a standard deviation of 30%. Determine the range of returns that ABC's actual returns will fall within 68% of the time.

   a.		Between -18% and 42%.
   b.		Between -48% and 72%.
   c.		Between 12% and 30%.
   d.		None of the above.

3. What is the exact real rate of return on an investment that has expected nominal return of 30% while the expected rate of inflation is 15%?

   a.		15%
   b.		13%
   c.		18%
   d.		10%

4. What is the ending price of a stock if its beginning price was $20, its cash dividend was $2, and the holding period return on a stock was 10%?

   a.		$18
   b.		$20
   c.		$22
   d.		$24

5. What is the risk premium of a stock that has an expected return of 20%, assuming the rate of return on Treasury bills is 3%?

   a.		20%
   b.		23%
   c.		17%
   d.		Cannot be determined.

6. The sample standard deviation of returns of 18%, -15%, -10% and 30% is _______________.

   a.		15.2%
   b.		18.8%
   c.		21.7%
   d.		25.3%

7. You purchased 100 shares of ABC stock for $20 per share. One year later you received $1 cash dividend and sold the shares for $22 each. Your holding-period return was _______________.

   a.		5%
   b.		10%
   c.		15%
   d.		20%

8. Which of the following is most correct concerning the standard deviation of a stock's returns?

   a.		It represents the chance of making negative returns from investing in the stock.
   b.		It should be zero if the stock has the same return every year.
   c.		It should be greater than the stock's geometric mean return.
   d.		All of the above are correct.

9. The _______________ return ignores the compounding effect.

   a.		geometric average
   b.		arithmetic average
   c.		dollar-weighted
   d.		Both B and C above.

10. What is the effective rate of return on a bond that has a holding period of return of 10%, assuming it pays coupons semiannually?

    	a.	10.25%
    	b.	10%
    	c.	21%
    	d.	8.25%

11. Arithmetic average returns are generally _______________ geometric average returns.

    a.		the same as
    b.		lower than
    c.		higher than
    d.		None of the above.

12. The geometric average return of 10%, -20%, -10%, and 20% is _______________.

    a.		0%
    b.		1.26%
    c.		-1.26%
    d.		-2%

13. The risk-free asset is proxied by the _______________.

    a.		Treasury bills
    b.		AAA corporate bonds
    c.		inflation-index bonds
    d.		money market mutual funds

14. A passive investment strategy assumes that securities are _______________.

    a.		overvalued
    b.		undervalued
    c.		priced fairly
    d.		priced inefficiently

15. Historically, which security had the lowest standard deviation?

    a.		U.S. large stocks
    b.		World bond portfolio
    c.		U.S. long-term Treasury bonds
    d.		U.S. Treasury bills