Multiple Choice: 1. Which of the following investments offered the highest overall return

Multiple Choice: 1. Which of the following investments offered the highest overall return

Multiple Choice:

1. Which of the following investments offered the highest overall return over the past eighty years?

a. Treasury Bills

b. S&P 500

c. Small stocks

d. Corporate bonds

2. Consider the following probability distribution of returns for Alpha Corporation:

Current Stock Price ($)	Stock Price in One Year ($)	Return R	Probability PR
	$35	40%	25%
$25	$25	0%	50%
	$20	-20%	25%

The expected return for Alpha Corporation is closest to:

a. 6.67%

b. 5.00%

c. 10%

d. 0.00%

3. Consider the following average annual returns:

Investment	Average Return
Small Stocks	23.2%
S&P 500	13.2%
Corporate Bonds	7.5%
Treasury Bonds	6.2%
Treasury Bills	4.8%

What is the excess return for the S&P 500?

a. 5.7%

b. 7.0%

c. 0%

d. 8.4%

4. Which of the following statements is FALSE?

a. Fluctuations of a stock's returns that are due to firm-specific news are common risks.

b. The volatility in a large portfolio will decline until only the systematic risk remains.

c. When we combine many stocks in a large portfolio, the firm-specific risks for each stock will average out and be diversified.

d.The risk premium of a security is determined by its systematic risk and does not depend on its diversifiable risk