Question 3 (1 point) A historic study of financial markets (1920s-present) demonstrates that: i) Stocks whose price is predominantly driven by their cash cow value have produced lower future returns than stocks whose price is predominantly driven by their NPVGO value. ii) Although in the very short term stock returns can be negative, there has never been a 20-year period where their returns have been negative after accounting for fees, taxes,and inflation. iii) High Shiller PE ratios today have historically been associated with above average future stock market returns over a 10-year period. iv) Using a normal distribution to describe potential stock market outcomes overestimates the probability of stock market crashes(a 10% loss in a day). i ii, iii O iii, iv None of the above Question 4 (1 point) Which of the following is true about the risk premium? i) The risk premium has been higher for stocks than bonds in the US and Canadian Market historically. ii) The risk premium would be unchanged if geometric or arithmetic returns were used to calculate it. iii) The risk premium directly measures how stocks perform relative to inflation. iv) The risk premium is the amount investors demand in return for putting their money on the market. ii, iv i,iii i, iv None of the above Question 5 (1 point) If portfolio weights are positive: 1) Can the return on a portfolio ever be less than the smallest return on an individual security in the portfolio? 2) Can the variance of a portfolio ever be less than the smallest variance of an individual security in the portfolio? 1) yes; 2) yes 1) yes; 2) no 1) no; 2) yes 1) no; 2) no Question 3 (1 point) A historic study of financial markets (1920s-present) demonstrates that: i) Stocks whose price is predominantly driven by their cash cow value have produced lower future returns than stocks whose price is predominantly driven by their NPVGO value. ii) Although in the very short term stock returns can be negative, there has never been a 20-year period where their returns have been negative after accounting for fees, taxes,and inflation. iii) High Shiller PE ratios today have historically been associated with above average future stock market returns over a 10-year period. iv) Using a normal distribution to describe potential stock market outcomes overestimates the probability of stock market crashes(a 10% loss in a day). i ii, iii O iii, iv None of the above Question 4 (1 point) Which of the following is true about the risk premium? i) The risk premium has been higher for stocks than bonds in the US and Canadian Market historically. ii) The risk premium would be unchanged if geometric or arithmetic returns were used to calculate it. iii) The risk premium directly measures how stocks perform relative to inflation. iv) The risk premium is the amount investors demand in return for putting their money on the market. ii, iv i,iii i, iv None of the above Question 5 (1 point) If portfolio weights are positive: 1) Can the return on a portfolio ever be less than the smallest return on an individual security in the portfolio? 2) Can the variance of a portfolio ever be less than the smallest variance of an individual security in the portfolio? 1) yes; 2) yes 1) yes; 2) no 1) no; 2) yes 1) no; 2) no
