Question 1

Which one of the following statements is correct based on the period 1926-2016?

Accepted Answer

A)   Long-term government bonds had more volatile annual returns than did the long-term corporate bonds.
B)   The standard deviation of the annual rate of inflation was less than 3 percent.
C)   U.S Treasury bills have a zero variance in returns because they are risk-free.
D)   The risk premium on small-company stocks was less than 10 percent.
E)   The risk premium on all U.S. government securities is 0 percent.F) A) and B)
G) B) and C)

Question 2

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2016?

Accepted Answer

A)   Long-term government bonds
B)   Small-company stocks
C)   Large-company stocks
D)   Long-term corporate bonds
E)   U.S. Treasury billsF) B) and C)
G) C) and D)

Question 3

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 7 percent, 13 percent, 19 percent, −8 percent, and 15 percent. Suppose the average inflation rate over this time period was 2.6 percent and the average T-bill rate was 3.1 percent. Based on this information, what was the average nominal risk premium?

Accepted Answer

A)   6.6 percent
B)   6.1 percent
C)   9.2 percent
D)   1.2 percent
E)   3.5 percentF) None of the above
G) A) and B)

Question 4

The return earned in an average year over a multiyear period is called the ________ average return.

Accepted Answer

A)   arithmetic
B)   standard
C)   variant
D)   geometric
E)   realF) A) and D)
G) B) and D)

Question 5

Christina purchased 500 shares of stock at a price of $62.30 a share and sold the shares for $64.25 each. She also received $738 in dividends. If the inflation rate was 3.9 percent, what was her exact real rate of return on this investment?

Accepted Answer

A)   4.20 percent
B)   1.54 percent
C)   1.60 percent
D)   3.95 percent
E)   5.50 percentF) A) and D)
G) A) and B)

Question 6

Inside information has the least value when financial markets are:

Accepted Answer

A)   weak form efficient.
B)   semiweak form efficient.
C)   semistrong form efficient.
D)   strong form efficient.
E)   inefficient.F) A) and C)
G) All of the above

Question 7

The average compound return earned per year over a multiyear period is called the ________ average return.

Accepted Answer

A)   arithmetic
B)   standard
C)   variant
D)   geometric
E)   realF) B) and E)
G) All of the above

Question 8

The rate of return on which type of security is normally used as the risk-free rate of return?

Accepted Answer

A)   Long-term Treasury bonds
B)   Long-term corporate bonds
C)   Treasury bills
D)   Intermediate-term Treasury bonds
E)   Intermediate-term corporate bondsF) A) and B)
G) A) and C)

Question 9

Standard deviation is a measure of which one of the following?

Accepted Answer

A)   Average rate of return
B)   Volatility
C)   Probability
D)   Risk premium
E)   Real returnsF) B) and E)
G) A) and B)

Question 10

Which one of the following statements is correct concerning market efficiency?

Accepted Answer

A)   Real asset markets are more efficient than financial markets.
B)   If a market is efficient, arbitrage opportunities should be common.
C)   In an efficient market, some market participants will have an advantage over others.
D)   A firm will generally receive a fair price when it issues new shares of stock if the market is efficient.
E)   New information will gradually be reflected in a stock's price to avoid any sudden price changes in an efficient market.F) All of the above
G) A) and C)

Question 11

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) C) and D)
G) A) and E)

Question 12

A stock had annual returns of 5.1 percent, 12.2 percent, −3.8 percent, and 9.4 percent for the past four years. The arithmetic average of these returns is ________ percent while the geometric average return for the period is ________ percent.

Accepted Answer

A)   5.73; 5.06
B)   5.73; 5.55
C)   5.91; 5.74
D)   5.91; 5.62
E)   5.73; 8.92F) C) and D)
G) A) and E)

Question 13

Which one of the following statements correctly applies to the period 1926-2016?

Accepted Answer

A)   Large-company stocks earned a higher average risk premium than did small-company stocks.
B)   The average inflation rate exceeded the average return on U.S. Treasury bills.
C)   Large-company stocks had an average annual return of 14.7 percent.
D)   Inflation averaged 2.6 percent for the period.
E)   Long-term corporate bonds outperformed long-term government bonds.F) C) and D)
G) None of the above

Question 14

A stock has a geometric average return of 14.6 percent and an arithmetic average return of 15.5 percent based on the last 15 years. What is the estimated average rate of return for the next six years based on Blume's formula?

Accepted Answer

A)   14.79 percent
B)   14.96 percent
C)   15.28 percent
D)   15.18 percent
E)   15.42 percentF) A) and D)
G) B) and C)

Question 15

Suppose you bought a $1,000 face value bond with a coupon rate of 5.6 percent one year ago. The purchase price was $987.50. You sold the bond today for $994.20. If the inflation rate last year was 2.6 percent, what was your exact real rate of return on this investment?

Accepted Answer

A)   4.88 percent
B)   5.32 percent
C)   3.65 percent
D)   3.78 percent
E)   4.47 percentF) D) and E)
G) A) and E)

Question 16

A stock had annual returns of 6 percent, 13 percent, 11 percent, −8 percent, and 3 percent for the past five years, respectively. What is the standard deviation of returns for this stock?

Accepted Answer

A)   10.79 percent
B)   12.60 percent
C)   6.48 percent
D)   14.42 percent
E)   8.28 percentF) All of the above
G) A) and B)

Question 17

Over a 25-year period an asset had an arithmetic return of 13.1 percent and a geometric return of 12.6 percent. Using Blume's formula, what is your best estimate of the future annual returns over the next 10 years?

Accepted Answer

A)   11.18 percent
B)   13.04 percent
C)   11.84 percent
D)   12.91 percent
E)   12.46 percentF) A) and D)
G) C) and D)

Question 18

For the period 1926-2016, the average risk premium on large-company stocks was about:

Accepted Answer

A)   12.7 percent.
B)   10.4 percent.
C)   8.6 percent.
D)   6.9 percent.
E)   7.3 percent.F) A) and C)
G) A) and B)

Question 19

One year ago, you purchased 200 shares of SL Industries stock at a price of $18.97 a share. The stock pays an annual dividend of $1.42 per share. Today, you sold all of your shares for $17.86 per share. What is your total dollar return on this investment?

Accepted Answer

A)   $50
B)   $91
C)   $58
D)   $62
E)   $82F) A) and D)
G) All of the above

Question 20

One year ago, you purchased a stock at a price of $43.20 per share. The stock pays quarterly dividends of $.18 per share. Today, the stock is selling for $45.36 per share. What is your capital gain on this investment?

Accepted Answer

A)   $1.44
B)   $2.16
C)   $2.80
D)   $1.74
E)   $2.34F) B) and E)
G) A) and B)

Exam 12: Some Lessons from Capital Market History

Standard deviation is a measure of which one of the following?

Correct Answer
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A stock had annual returns of 6 percent, 13 percent, 11 percent, −8 percent, and 3 percent for the past five years, respectively. What is the standard deviation of returns for this stock?

Correct Answer
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Which one of the following statements is correct concerning market efficiency?

Correct Answer
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Christina purchased 500 shares of stock at a price of $62.30 a share and sold the shares for $64.25 each. She also received $738 in dividends. If the inflation rate was 3.9 percent, what was her exact real rate of return on this investment?

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 15 years. What is the estimated average rate of return for the next six years based on Blume's formula?

Correct Answer
verified

For the period 1926-2016, the average risk premium on large-company stocks was about:

Correct Answer
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Which one of the following categories of securities had the lowest average risk premium for the period 1926-2016?

Correct Answer
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The return earned in an average year over a multiyear period is called the ________ average return.

Correct Answer
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The rate of return on which type of security is normally used as the risk-free rate of return?

Correct Answer
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A stock had annual returns of 5.1 percent, 12.2 percent, −3.8 percent, and 9.4 percent for the past four years. The arithmetic average of these returns is percent while the geometric average return for the period is percent.

Correct Answer
verified

One year ago, you purchased 200 shares of SL Industries stock at a price of $18.97 a share. The stock pays an annual dividend of $1.42 per share. Today, you sold all of your shares for $17.86 per share. What is your total dollar return on this investment?

Correct Answer
verified

Which one of the following statements correctly applies to the period 1926-2016?

Correct Answer
verified

Correct Answer
verified

Which one of the following statements is correct based on the period 1926-2016?

Correct Answer
verified

To convince investors to accept greater volatility, you must:

Correct Answer
verified

Over a 25-year period an asset had an arithmetic return of 13.1 percent and a geometric return of 12.6 percent. Using Blume's formula, what is your best estimate of the future annual returns over the next 10 years?

Correct Answer
verified

The average compound return earned per year over a multiyear period is called the ________ average return.

Correct Answer
verified

Suppose you bought a $1,000 face value bond with a coupon rate of 5.6 percent one year ago. The purchase price was $987.50. You sold the bond today for $994.20. If the inflation rate last year was 2.6 percent, what was your exact real rate of return on this investment?

Correct Answer
verified

Inside information has the least value when financial markets are:

Correct Answer
verified

One year ago, you purchased a stock at a price of $43.20 per share. The stock pays quarterly dividends of $.18 per share. Today, the stock is selling for $45.36 per share. What is your capital gain on this investment?

Correct Answer
verified

Exam 12: Some Lessons from Capital Market History

Standard deviation is a measure of which one of the following?

Correct AnswerverifiedShow Answer

A stock had annual returns of 6 percent, 13 percent, 11 percent, −8 percent, and 3 percent for the past five years, respectively. What is the standard deviation of returns for this stock?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning market efficiency?

Correct AnswerverifiedShow Answer

Christina purchased 500 shares of stock at a price of $62.30 a share and sold the shares for $64.25 each. She also received $738 in dividends. If the inflation rate was 3.9 percent, what was her exact real rate of return on this investment?

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 15 years. What is the estimated average rate of return for the next six years based on Blume's formula?

Correct AnswerverifiedShow Answer

For the period 1926-2016, the average risk premium on large-company stocks was about:

Correct AnswerverifiedShow Answer

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2016?

Correct AnswerverifiedShow Answer

The return earned in an average year over a multiyear period is called the ________ average return.

Correct AnswerverifiedShow Answer

The rate of return on which type of security is normally used as the risk-free rate of return?

Correct AnswerverifiedShow Answer

A stock had annual returns of 5.1 percent, 12.2 percent, −3.8 percent, and 9.4 percent for the past four years. The arithmetic average of these returns is ________ percent while the geometric average return for the period is ________ percent.

Correct AnswerverifiedShow Answer

One year ago, you purchased 200 shares of SL Industries stock at a price of $18.97 a share. The stock pays an annual dividend of $1.42 per share. Today, you sold all of your shares for $17.86 per share. What is your total dollar return on this investment?

Correct AnswerverifiedShow Answer

Which one of the following statements correctly applies to the period 1926-2016?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct based on the period 1926-2016?

Correct AnswerverifiedShow Answer

To convince investors to accept greater volatility, you must:

Correct AnswerverifiedShow Answer

Over a 25-year period an asset had an arithmetic return of 13.1 percent and a geometric return of 12.6 percent. Using Blume's formula, what is your best estimate of the future annual returns over the next 10 years?

Correct AnswerverifiedShow Answer

The average compound return earned per year over a multiyear period is called the ________ average return.

Correct AnswerverifiedShow Answer

Suppose you bought a $1,000 face value bond with a coupon rate of 5.6 percent one year ago. The purchase price was $987.50. You sold the bond today for $994.20. If the inflation rate last year was 2.6 percent, what was your exact real rate of return on this investment?

Correct AnswerverifiedShow Answer

Inside information has the least value when financial markets are:

Correct AnswerverifiedShow Answer

One year ago, you purchased a stock at a price of $43.20 per share. The stock pays quarterly dividends of $.18 per share. Today, the stock is selling for $45.36 per share. What is your capital gain on this investment?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A stock had annual returns of 5.1 percent, 12.2 percent, −3.8 percent, and 9.4 percent for the past four years. The arithmetic average of these returns is percent while the geometric average return for the period is percent.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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