Question 1

Explain why investors receive exactly what they pay for in a totally efficient market.

Accepted Answer

In a totally efficient market,...

Question 2

The standard deviation measures the _____ of a security's returns over time.

Accepted Answer

A)  average value
B)  frequency
C)  volatility
D)  mean
E)  arithmetic averageF) A) and D)
G) B) and E)

Question 3

The common stock of Hillshire Farms has yielded 16.3 percent,7.2 percent,11.8 percent,-3.6 percent,and 9.7 percent over the past five years,respectively.What is the geometric average return?

Accepted Answer

A)  7.91 percent
B)  8.03 percent
C)  8.07 percent
D)  8.27 percent
E)  9.64 percentF) B) and E)
G) D) and E)

Question 4

Hercules Movers pays a constant annual dividend of $1.75 per share on its stock.Last year at this time,the market rate of return on this stock was 14.8 percent.Today,the market rate has fallen to 11.2 percent.What would your capital gains yield have been if you had purchased this stock one year ago and then sold the stock today?

Accepted Answer

A)  18.78 percent
B)  22.03 percent
C)  28.16 percent
D)  30.00 percent
E)  32.14 percentF) A) and E)
G) A) and B)

Question 5

Which one of the following could cause the total return on an investment to be a negative rate?

Accepted Answer

A)  Constant annual dividend amount
B)  Increase in the annual dividend amount
C)  Stock price that remains constant over the investment period
D)  Stock price that declines over the investment period
E)  Stock price that increases over the investment periodF) C) and D)
G) B) and C)

Question 6

For the period 1926-2011,small-company stocks had a risk premium of 12.6 percent.What does the term risk premium mean?
 Is the risk premium on these stocks considered to be relatively high or relative low as compared to other investment classes?
 Explain why.

Accepted Answer

Risk premium is the excess return requir...

Question 7

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Accepted Answer

A)  Geometric average return
B)  Variance of returns
C)  Standard deviation of returns
D)  Arithmetic average return
E)  Normal distribution of returnsF) C) and D)
G) A) and E)

Question 8

The historical returns on large-company stocks,as reported by Ibbotson and Sinquefield and reported in your textbook,are based on the:

Accepted Answer

A)  largest 20 percent of the stocks traded on the NYSE.
B)  stock returns for the largest 10 percent of the publicly traded firms in the U.S.
C)  returns of the 100 largest firms in the U.S.
D)  returns of all the stocks listed on the NYSE.
E)  stocks of the 500 companies included in the S&P 500 index.F) A) and C)
G) C) and D)

Question 9

One year ago,you purchased 100 shares of a stock.This morning you sold those shares and realized a total return of 8.2 percent.Given this information,you know for sure the:

Accepted Answer

A)  stock price increased by 8.2 percent over the last year.
B)  stock increased in value over the past year.
C)  stock paid a dividend.
D)  dividend yield is greater than zero.
E)  sum of the dividend yield and the capital gains yield is 8.2 percent.F) B) and D)
G) B) and E)

Question 10

An efficient capital market is best defined as a market in which security prices reflect which one of the following?

Accepted Answer

A)  Current inflation
B)  A risk premium
C)  Available information
D)  The historical arithmetic rate of return
E)  The historical geometric rate of returnF) B) and E)
G) B) and C)

Question 11

A stock has returns for five years of 23 percent,-17 percent,8 percent,22 percent,and 3 percent,respectively.The stock has an average return of ______ percent and a standard deviation of _____ percent.

Accepted Answer

A)  7.80; 13.54
B)  7.80; 14.63
C)  7.80; 16.36
D)  14.60; 14.63
E)  14.60; 16.36F) B) and E)
G) None of the above

Question 12

The lower the standard deviation of returns on a security,the _____ the expected rate of return and the _____ the risk.

Accepted Answer

A)  lower; lower
B)  lower; higher
C)  higher; lower
D)  higher; higher
E)  You cannot determine anything about the expected rate of return from the standard deviation.F) A) and D)
G) C) and D)

Question 13

Over the past four years,a stock produced returns of 15 percent,6 percent,11 percent,and 22 percent,respectively.Based on these four years,what range of returns would you expect to see 95 percent of the time?

Accepted Answer

A)  -6.58 percent to 31.33 percent
B)  -6.58 percent to 27.02 percent
C)  -6.58 percent to 24.39 percent
D)  -0.02 percent to 24.39 percent
E)  -0.02 percent to 27.02 percentF) A) and B)
G) C) and D)

Question 14

Which one of the following has the narrowest distribution of returns for the period 1926-2011?

Accepted Answer

A)  Long-term corporate bonds
B)  Long-term government bonds
C)  Intermediate-terms government bonds
D)  Large-company stocks
E)  Small-company stocksF) C) and E)
G) A) and B)

Question 15

Investors require a 4 percent return on risk-free investments.On a particular risky investment,investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent.What is this excess return called?

Accepted Answer

A)  Inflation premium
B)  Required return
C)  Real return
D)  Average return
E)  Risk premiumF) A) and E)
G) D) and E)

Question 16

Over the past five years,a stock returned 8.3 percent,-32.5 percent,-2.2 percent,46.9 percent,and 11.8 percent,respectively.What is the variance of these returns?

Accepted Answer

A)  0.071188
B)  0.076290
C)  0.081504
D)  0.082547
E)  0.091306F) A) and B)
G) C) and E)

Question 17

Which one of the following combinations will always result in an increased dividend yield?

Accepted Answer

A)  Increase in the stock price combined with a lower dividend amount
B)  Increase in the stock price combined with a higher dividend amount
C)  Decrease in the stock price combined with a lower dividend amount
D)  Decrease in the stock price combined with a higher dividend amount
E)  Increase in the stock price combined with a constant dividend amountF) A) and B)
G) C) and D)

Question 18

The historical record for the period 1926-2011 shows that the annual nominal rate of return on:

Accepted Answer

A)  risk-free securities has averaged around 5 percent.
B)  the Consumer Price Index has been positive every year.
C)  U.S. Treasury bills have had a positive rate of return for every year in the period.
D)  U.S. Treasury bills is constant.
E)  large company stocks has averaged around 9 percent.F) None of the above
G) A) and D)

Question 19

You earned 26.3 percent on your investments for a time period when the risk-free rate was 3.8 percent and the inflation rate was 4.0 percent.What was your real rate of return for the period?

Accepted Answer

A)  19.12 percent
B)  20.06 percent
C)  21.44 percent
D)  21.67 percent
E)  21.08 percentF) B) and E)
G) None of the above

Question 20

You bought a share of 8.5 percent preferred stock for $87.40 last year.The market price for your stock is now $88.10.What is your total return for last year?

Accepted Answer

A)  7.51 percent
B)  7.73 percent
C)  7.86 percent
D)  8.10 percent
E)  10.53 percentF) A) and E)
G) A) and D)

Exam 10: Some Lessons From Capital Market History

The historical returns on large-company stocks,as reported by Ibbotson and Sinquefield and reported in your textbook,are based on the:

Correct Answer
verified

A stock has returns for five years of 23 percent,-17 percent,8 percent,22 percent,and 3 percent,respectively.The stock has an average return of __ percent and a standard deviation of _ percent.

Correct Answer
verified

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Correct Answer
verified

You earned 26.3 percent on your investments for a time period when the risk-free rate was 3.8 percent and the inflation rate was 4.0 percent.What was your real rate of return for the period?

Correct Answer
verified

Over the past four years,a stock produced returns of 15 percent,6 percent,11 percent,and 22 percent,respectively.Based on these four years,what range of returns would you expect to see 95 percent of the time?

Correct Answer
verified

One year ago,you purchased 100 shares of a stock.This morning you sold those shares and realized a total return of 8.2 percent.Given this information,you know for sure the:

Correct Answer
verified

Which one of the following could cause the total return on an investment to be a negative rate?

Correct Answer
verified

Correct Answer
verified

The lower the standard deviation of returns on a security,the _ the expected rate of return and the _ the risk.

Correct Answer
verified

Explain why investors receive exactly what they pay for in a totally efficient market.

Correct Answer
verified
In a totally efficient market,...
View Answer

The standard deviation measures the _____ of a security's returns over time.

Correct Answer
verified

For the period 1926-2011,small-company stocks had a risk premium of 12.6 percent.What does the term risk premium mean? Is the risk premium on these stocks considered to be relatively high or relative low as compared to other investment classes? Explain why.

Correct Answer
verified
Risk premium is the excess return requir...
View Answer

Which one of the following has the narrowest distribution of returns for the period 1926-2011?

Correct Answer
verified

Over the past five years,a stock returned 8.3 percent,-32.5 percent,-2.2 percent,46.9 percent,and 11.8 percent,respectively.What is the variance of these returns?

Correct Answer
verified

The historical record for the period 1926-2011 shows that the annual nominal rate of return on:

Correct Answer
verified

You bought a share of 8.5 percent preferred stock for $87.40 last year.The market price for your stock is now $88.10.What is your total return for last year?

Correct Answer
verified

Which one of the following combinations will always result in an increased dividend yield?

Correct Answer
verified

An efficient capital market is best defined as a market in which security prices reflect which one of the following?

Correct Answer
verified

The common stock of Hillshire Farms has yielded 16.3 percent,7.2 percent,11.8 percent,-3.6 percent,and 9.7 percent over the past five years,respectively.What is the geometric average return?

Correct Answer
verified

Investors require a 4 percent return on risk-free investments.On a particular risky investment,investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent.What is this excess return called?

Correct Answer
verified

Exam 10: Some Lessons From Capital Market History

The historical returns on large-company stocks,as reported by Ibbotson and Sinquefield and reported in your textbook,are based on the:

Correct AnswerverifiedShow Answer

A stock has returns for five years of 23 percent,-17 percent,8 percent,22 percent,and 3 percent,respectively.The stock has an average return of ______ percent and a standard deviation of _____ percent.

Correct AnswerverifiedShow Answer

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Correct AnswerverifiedShow Answer

You earned 26.3 percent on your investments for a time period when the risk-free rate was 3.8 percent and the inflation rate was 4.0 percent.What was your real rate of return for the period?

Correct AnswerverifiedShow Answer

Over the past four years,a stock produced returns of 15 percent,6 percent,11 percent,and 22 percent,respectively.Based on these four years,what range of returns would you expect to see 95 percent of the time?

Correct AnswerverifiedShow Answer

One year ago,you purchased 100 shares of a stock.This morning you sold those shares and realized a total return of 8.2 percent.Given this information,you know for sure the:

Correct AnswerverifiedShow Answer

Which one of the following could cause the total return on an investment to be a negative rate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The lower the standard deviation of returns on a security,the _____ the expected rate of return and the _____ the risk.

Correct AnswerverifiedShow Answer

Explain why investors receive exactly what they pay for in a totally efficient market.

Correct AnswerverifiedIn a totally efficient market,...View AnswerShow Answer

The standard deviation measures the _____ of a security's returns over time.

Correct AnswerverifiedShow Answer

For the period 1926-2011,small-company stocks had a risk premium of 12.6 percent.What does the term risk premium mean? Is the risk premium on these stocks considered to be relatively high or relative low as compared to other investment classes? Explain why.

Correct AnswerverifiedRisk premium is the excess return requir...View AnswerShow Answer

Which one of the following has the narrowest distribution of returns for the period 1926-2011?

Correct AnswerverifiedShow Answer

Over the past five years,a stock returned 8.3 percent,-32.5 percent,-2.2 percent,46.9 percent,and 11.8 percent,respectively.What is the variance of these returns?

Correct AnswerverifiedShow Answer

The historical record for the period 1926-2011 shows that the annual nominal rate of return on:

Correct AnswerverifiedShow Answer

You bought a share of 8.5 percent preferred stock for $87.40 last year.The market price for your stock is now $88.10.What is your total return for last year?

Correct AnswerverifiedShow Answer

Which one of the following combinations will always result in an increased dividend yield?

Correct AnswerverifiedShow Answer

An efficient capital market is best defined as a market in which security prices reflect which one of the following?

Correct AnswerverifiedShow Answer

The common stock of Hillshire Farms has yielded 16.3 percent,7.2 percent,11.8 percent,-3.6 percent,and 9.7 percent over the past five years,respectively.What is the geometric average return?

Correct AnswerverifiedShow Answer

Investors require a 4 percent return on risk-free investments.On a particular risky investment,investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent.What is this excess return called?

Correct AnswerverifiedShow Answer

Correct Answer
verified

A stock has returns for five years of 23 percent,-17 percent,8 percent,22 percent,and 3 percent,respectively.The stock has an average return of __ percent and a standard deviation of _ percent.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The lower the standard deviation of returns on a security,the _ the expected rate of return and the _ the risk.

Correct Answer
verified

Correct Answer
verified
In a totally efficient market,...
View Answer

Correct Answer
verified

Correct Answer
verified
Risk premium is the excess return requir...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified