Historical Average Returns and Risk

Question1

We have the following information on the shares prices of Papa Smirph Corporation over the last five years. Calculate the total dollar return and percentage return on each share.

YearPapa Smirph share priceAnnual dividend per share

1 $20 $1.50

2 $25 $1.5

3 $22 $1.5

4 $30 $1.60

5 $32 $1.6

Select one:

a. $12; 60%

b. $19.7; 61.6%

c. $19.7; 98.5%

d. $12; 38.5%

e. $3.94; 15.3%

Question2

Given the following share price history, what is the arithmetic average return per share?

Year Share price

1 $22

2 $26

3 $30

4 $28

5 $25

Select one:

a. 13.64%

b. 4.05%

c. 3.24%

d. 5.36%

e. 32.75%

Question3

Given the following share price and Consumer Price Index history, what is the average real return per share?

Year Share price Consumer Price Index

1 $35 100

2 $30 102

3 $39 104

4 $42 106

5 $45 108

Select one:

a. 12.59%

b. 4.49%

c. 3.55%

d. 5.16%

e. 5.59%

Question4

We know that during the last 10 years, the average historical return on a market index is 12%. We also know that the average inflation rate and average risk-free rate over the last 10 years are 2% and 5%, respectively. What is the real risk premium using the exact Fisher equation?

Select one:

a. 2.94%

b. 6.86%

c. 7.00%

d. 9.80%

e. 10.00%

Question5

Given the following share price history, calculate the standard deviation of the returns on this stock.

Year Share price

1 $35

2 $30

3 $39

4 $42

5 $45

Select one:

a. 0.18%

b. 5.89%

c. 18.08%

d. 3.27%

e. 1.81%

Question7

What is the geometric average return of a stock with the following share price history?

YearShare price

1 $35

2 $30

3 $39

4 $42

5 $45

Select one:

a. 7.95%

b. 7.64%

c. 7.14%

d. 6.84%

e. 6.48%

Question9

The average historical annual return on a stock is 7.16%, with a standard deviation of 44.35%. What is the 97.5% annual value-at-risk (VaR) on a $1 million investment in this stock?

Select one:

a. -$371,900

b. -$443,000

c. -$815,400

d. -$975,000

e. -$1,000,000