12. The return relative solves the problem of a. inflation b negative returns c.

Question

12. The return relative solves the problem of a. inflation b negative returns c. interest rates d. tax differences If the Dow Jones Industrials had a price appreciation of 6 percent one year and ye return for the year was 9 percent, the difference would be due to: 13. a. the tax treatment of capital gains. b. the cumulative wealth effect c. dividends. d. profits 14. In order to determine the compound growth rate of an investment over some period, an investor would calculate the arithmetic mean a. b. geometric mean c. calculus mean d. arithmetic median 15. A major difference between real and nominal returns is that: a. real returns adjust for inflation and nominal returns do not b. real returns use actual cashflows and nominal returns use expected cashflows c. real returns adjust for commissions and nominal returns do not d. real returns show the highest possible return and nominal returns show the lowest possible return 16. When most people refer to mean rate of return, they are referring to the: a. holding period rate of return b. arithmetic average rate of return c. geometric average rate of return d. cumulative average rate of return Which of the following statements regarding the arithmetic mean and the geometric is true? 17. a. The arithmetic mean is always a better measure of average performance b. Th c. The d. arithmetic mean is a better measure of performance over single periods The geometric mean is the best estimate of the expected return for the next period e geometric mean is always a better measure of average performance

Explanation / Answer

12 answer b negative return the return relative solves the problem of negative returns , when an investment produces negative cash flows which created the negative retune and in this cases the return relative on one project consider the other investments to solve the problem of the negative return 13 answer c dividends the return of the stock will comprise of the increase in the price plus the dividend , in the present case the return is 9 % and price appreciation is 6% , hence the difference will be dividends 14 answer b geometric mean geometric mean calculations will provide the better compound growth rate of an investment over some period , hence the investor will use this 15 answer a real returns adjust for inflation and nominal returns do not the nominal rate means the real rate plus the inflation rate , hence the real returns adjust for inflation and nominal returns do not

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