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%

Question:

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%

Question:

Which of the following lessons can be learned from studying the history of individual asset returns in the capital market?

Select one:

a. Return and risk expectations can and will materialize over time if we wait long enough.

b. There are rewards, in terms of higher risk premiums, for holding risky assets.

c. Arithmetic and geometric average returns would be the same in an efficient financial market.

d. Unsystematic risk is the risk that is important to the average investor.

e. Excess returns on mutual funds cannot beat excess returns on index funds.