Question 1

Which one of the following statements correctly applies to the period 1926-2010?

Accepted Answer

A)  Large-company stocks earned a higher average risk premium than did small-company stocks.
B)  Intermediate-term government bonds had a higher average return than long-term corporate bonds.
C)  Large-company stocks had an average annual return of 14.7 percent.
D)  Inflation averaged 2.6 percent for the period.
E)  U.S.Treasury bills had a positive average real rate of return.F) A) and B)
G) A) and C)

Question 2

Which one of the following time periods is associated with high rates of inflation?

Accepted Answer

A)  1929-1933
B)  1957-1961
C)  1978-1981
D)  1992-1996
E)  2001-2005F) B) and E)
G) D) and E)

Question 3

Over the past five years, a stock produced returns of 11 percent, 14 percent, 4 percent, -9 percent, and 5 percent.What is the probability that an investor in this stock will not lose more than 10 percent in any one given year?

Accepted Answer

A)  greater than 0.5 but less than 1.0 percent
B)  greater than 1.0 percent but less than 2.5 percent
C)  greater than 2.5 percent but less than 16 percent
D)  greater than 84 percent but less than 97.5 percent
E)  greater than 95 percentF) A) and E)
G) A) and D)

Question 4

Small-company stocks, as the term is used in the textbook, are best defined as the:

Accepted Answer

A)  500 newest corporations in the U.S.
B)  firms whose stock trades OTC.
C)  smallest twenty percent of the firms listed on the NYSE.
D)  smallest twenty-five percent of the firms listed on NASDAQ.
E)  firms whose stock is listed on NASDAQ.F) B) and C)
G) B) and E)

Question 5

You want to invest in an index fund which directly correlates to the overall U.S.stock market.How can you determine if the market risk premium you are expecting to earn is reasonable for the long-term?

Accepted Answer

You could compare your expectation to th...

Question 6

Last year, you purchased 500 shares of Analog Devices, Inc.stock for $11.16 a share.You have received a total of $120 in dividends and $7,190 from selling the shares.What is your capital gains yield on this stock?

Accepted Answer

A)  26.70 percent
B)  26.73 percent
C)  28.85 percent
D)  29.13 percent
E)  31.02 percentF) B) and C)
G) C) and D)

Question 7

To convince investors to accept greater volatility, you must:

Accepted Answer

A)  decrease the risk premium.
B)  increase the risk premium.
C)  decrease the real return.
D)  decrease the risk-free rate.
E)  increase the risk-free rate.F) B) and E)
G) B) and D)

Question 8

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent.Which one of the following terms refers to the difference between these two rates of return?

Accepted Answer

A)  risk premium
B)  geometric return
C)  arithmetic
D)  standard deviation
E)  varianceF) All of the above
G) C) and E)

Question 9

Which one of the following is defined by its mean and its standard deviation?

Accepted Answer

A)  arithmetic nominal return
B)  geometric real return
C)  normal distribution
D)  variance
E)  risk premiumF) B) and D)
G) B) and C)

Question 10

You bought one of Great White Shark Repellant Co.'s 10 percent coupon bonds one year ago for $815.These bonds pay annual payments, have a face value of $1,000, and mature 14 years from now.Suppose you decide to sell your bonds today when the required return on the bonds is 14 percent.The inflation rate over the past year was 3.7 percent.What was your total real return on this investment?

Accepted Answer

A)  2.97 percent
B)  1.75 percent
C)  1.18 percent
D)  3.44 percent
E)  2.58 percentF) B) and D)
G) A) and B)

Question 11

Based on past 23 years, Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Accepted Answer

A)  8.70 percent
B)  8.92 percent
C)  9.13 percent
D)  9.38 percent
E)  10.24 percentF) All of the above
G) None of the above

Question 12

The real rate of return on a stock is approximately equal to the nominal rate of return:

Accepted Answer

A)  multiplied by (1 + inflation rate) .
B)  plus the inflation rate.
C)  minus the inflation rate.
D)  divided by (1 + inflation rate) .
E)  divided by (1 - inflation rate) .F) B) and C)
G) None of the above

Question 13

Which one of the following correctly describes the dividend yield?

Accepted Answer

A)  next year's annual dividend divided by today's stock price
B)  this year's annual dividend divided by today's stock price
C)  this year's annual dividend divided by next year's expected stock price
D)  next year's annual dividend divided by this year's annual dividend
E)  the increase in next year's dividend over this year's dividend divided by this year's dividendF) None of the above
G) All of the above

Question 14

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 2 percent, -12 percent, 16 percent, 22 percent, and 18 percent.What is the variance of these returns?

Accepted Answer

A)  0.02070
B)  0.01972
C)  0.01725
D)  0.01684
E)  0.02633F) A) and B)
G) B) and C)

Question 15

Shawn earned an average return of 14.6 percent on his investments over the past 20 years while the S&P 500, a measure of the overall market, only returned an average of 13.9 percent.Explain how this can occur if the stock market is efficient.

Accepted Answer

An investor can purchase securities that...

Question 16

What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?

Accepted Answer

A)  1.0 percent
B)  2.5 percent
C)  5.0 percent
D)  16 percent
E)  32 percentF) C) and D)
G) A) and D)

Question 17

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities.Which one of the following terms best defines that market?

Accepted Answer

A)  riskless market
B)  evenly distributed market
C)  zero volatility market
D)  Blume's market
E)  efficient capital marketF) C) and E)
G) C) and D)

Question 18

What are the two primary lessons learned from capital market history? Use historical information to justify that these lessons are correct.

Accepted Answer

First, there is a reward for bearing ris...

Question 19

The excess return is computed as the:

Accepted Answer

A)  return on a security minus the inflation rate.
B)  return on a risky security minus the risk-free rate.
C)  risk premium on a risky security minus the risk-free rate.
D)  the risk-free rate plus the inflation rate.
E)  risk-free rate minus the inflation rate.F) A) and B)
G) None of the above

Question 20

A stock has a geometric average return of 14.6 percent and an arithmetic average return of 15.5 percent based on the last 33 years.What is the estimated average rate of return for the next 6 years based on Blume's formula?

Accepted Answer

A)  14.79 percent
B)  14.96 percent
C)  15.28 percent
D)  15.36 percent
E)  15.42 percentF) A) and B)
G) All of the above

Exam 12: Return, Risk and the Security Market

Last year, you purchased 500 shares of Analog Devices, Inc.stock for $11.16 a share.You have received a total of $120 in dividends and $7,190 from selling the shares.What is your capital gains yield on this stock?

Correct Answer
verified

What are the two primary lessons learned from capital market history? Use historical information to justify that these lessons are correct.

Correct Answer
verified
First, there is a reward for bearing ris...
View Answer

Correct Answer
verified

Which one of the following statements correctly applies to the period 1926-2010?

Correct Answer
verified

Small-company stocks, as the term is used in the textbook, are best defined as the:

Correct Answer
verified

The excess return is computed as the:

Correct Answer
verified

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities.Which one of the following terms best defines that market?

Correct Answer
verified

What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?

Correct Answer
verified

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 2 percent, -12 percent, 16 percent, 22 percent, and 18 percent.What is the variance of these returns?

Correct Answer
verified

Which one of the following time periods is associated with high rates of inflation?

Correct Answer
verified

Shawn earned an average return of 14.6 percent on his investments over the past 20 years while the S&P 500, a measure of the overall market, only returned an average of 13.9 percent.Explain how this can occur if the stock market is efficient.

Correct Answer
verified
An investor can purchase securities that...
View Answer

To convince investors to accept greater volatility, you must:

Correct Answer
verified

A stock has a geometric average return of 14.6 percent and an arithmetic average return of 15.5 percent based on the last 33 years.What is the estimated average rate of return for the next 6 years based on Blume's formula?

Correct Answer
verified

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent.Which one of the following terms refers to the difference between these two rates of return?

Correct Answer
verified

You want to invest in an index fund which directly correlates to the overall U.S.stock market.How can you determine if the market risk premium you are expecting to earn is reasonable for the long-term?

Correct Answer
verified
You could compare your expectation to th...
View Answer

Which one of the following correctly describes the dividend yield?

Correct Answer
verified

The real rate of return on a stock is approximately equal to the nominal rate of return:

Correct Answer
verified

Over the past five years, a stock produced returns of 11 percent, 14 percent, 4 percent, -9 percent, and 5 percent.What is the probability that an investor in this stock will not lose more than 10 percent in any one given year?

Correct Answer
verified

Which one of the following is defined by its mean and its standard deviation?

Correct Answer
verified

Based on past 23 years, Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Correct Answer
verified

Exam 12: Return, Risk and the Security Market

Last year, you purchased 500 shares of Analog Devices, Inc.stock for $11.16 a share.You have received a total of $120 in dividends and $7,190 from selling the shares.What is your capital gains yield on this stock?

Correct AnswerverifiedShow Answer

What are the two primary lessons learned from capital market history? Use historical information to justify that these lessons are correct.

Correct AnswerverifiedFirst, there is a reward for bearing ris...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements correctly applies to the period 1926-2010?

Correct AnswerverifiedShow Answer

Small-company stocks, as the term is used in the textbook, are best defined as the:

Correct AnswerverifiedShow Answer

The excess return is computed as the:

Correct AnswerverifiedShow Answer

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities.Which one of the following terms best defines that market?

Correct AnswerverifiedShow Answer

What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?

Correct AnswerverifiedShow Answer

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 2 percent, -12 percent, 16 percent, 22 percent, and 18 percent.What is the variance of these returns?

Correct AnswerverifiedShow Answer

Which one of the following time periods is associated with high rates of inflation?

Correct AnswerverifiedShow Answer

Shawn earned an average return of 14.6 percent on his investments over the past 20 years while the S&P 500, a measure of the overall market, only returned an average of 13.9 percent.Explain how this can occur if the stock market is efficient.

Correct AnswerverifiedAn investor can purchase securities that...View AnswerShow Answer

To convince investors to accept greater volatility, you must:

Correct AnswerverifiedShow Answer

A stock has a geometric average return of 14.6 percent and an arithmetic average return of 15.5 percent based on the last 33 years.What is the estimated average rate of return for the next 6 years based on Blume's formula?

Correct AnswerverifiedShow Answer

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent.Which one of the following terms refers to the difference between these two rates of return?

Correct AnswerverifiedShow Answer

You want to invest in an index fund which directly correlates to the overall U.S.stock market.How can you determine if the market risk premium you are expecting to earn is reasonable for the long-term?

Correct AnswerverifiedYou could compare your expectation to th...View AnswerShow Answer

Which one of the following correctly describes the dividend yield?

Correct AnswerverifiedShow Answer

The real rate of return on a stock is approximately equal to the nominal rate of return:

Correct AnswerverifiedShow Answer

Over the past five years, a stock produced returns of 11 percent, 14 percent, 4 percent, -9 percent, and 5 percent.What is the probability that an investor in this stock will not lose more than 10 percent in any one given year?

Correct AnswerverifiedShow Answer

Which one of the following is defined by its mean and its standard deviation?

Correct AnswerverifiedShow Answer

Based on past 23 years, Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
First, there is a reward for bearing ris...
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

Correct Answer
verified
An investor can purchase securities that...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
You could compare your expectation to th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified