Question 1

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) A) and B)
G) C) and D)

Question 2

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) All of the above
G) D) and E)

Question 3

If you excel in analyzing the future outlook of firms, you would prefer the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Accepted Answer

A)  weak
B)  semiweak
C)  semistrong
D)  strong
E)  perfectF) A) and C)
G) A) and D)

Question 4

A stock had the following prices and dividends. What is the geometric average return on this stock?

Accepted Answer

A)  -15.87 percent
B)  -15.21 percent
C)  -13.33 percent
D)  -12.91 percent
E)  -11.48 percentF) D) and E)
G) B) and E)

Question 5

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) None of the above

Question 6

According to theory, studying historical stock price movements to identify mispriced stocks:

Accepted Answer

A)  is effective as long as the market is only semistrong form efficient.
B)  is effective provided the market is only weak form efficient.
C)  is ineffective even when the market is only weak form efficient.
D)  becomes ineffective as soon as the market gains semistrong form efficiency.
E)  is ineffective only in strong form efficient markets.F) C) and D)
G) B) and C)

Question 7

Four months ago, you purchased 1,500 shares of Lakeside Bank stock for $11.20 a share. You have received dividend payments equal to $0.25 a share. Today, you sold all of your shares for $8.60 a share. What is your total dollar return on this investment?

Accepted Answer

A)  -$3,900
B)  -$3,525
C)  -$3,150
D)  -$2,950
E)  -$2,875F) B) and D)
G) All of the above

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) A) and B)
G) A) and C)

Question 9

Six months ago, you purchased 100 shares of stock in Global Trading at a price of $38.70 a share. The stock pays a quarterly dividend of $0.15 a share. Today, you sold all of your shares for $40.10 per share. What is the total amount of your dividend income on this investment?

Accepted Answer

A)  $15
B)  $30
C)  $45
D)  $50
E)  $60F) C) and D)
G) B) and D)

Question 10

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) A) and B)
G) B) and C)

Question 11

You just sold 600 shares of Wesley, Inc. stock at a price of $31.09 a share. Last year, you paid $30.92 a share to buy this stock. Over the course of the year, you received dividends totaling $1.20 per share. What is your total capital gain on this investment?

Accepted Answer

A)  -$618
B)  -$102
C)  $102
D)  $618
E)  $720F) A) and E)
G) C) and D)

Question 12

Calculate the standard deviation of the following rates of return:

Accepted Answer

A)  10.79 percent
B)  12.60 percent
C)  13.48 percent
D)  14.42 percent
E)  15.08 percentF) All of the above
G) None of the above

Question 13

How can an investor lose money on a stock while making money on a bond investment if there is a reward for bearing risk?
 Aren't stocks riskier than bonds?

Accepted Answer

There is a reward for bearing risk over ...

Question 14

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2007?

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) A) and C)
G) All of the above

Question 15

The return earned in an average year over a multi-year period is called the _____ average return.

Accepted Answer

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

Question 16

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) B) and C)
G) B) and E)

Question 17

A stock had returns of 12 percent, 16 percent, 13 percent, 19 percent, 15 percent, and -6 percent over the last six years. What is the geometric average return on the stock for this period?

Accepted Answer

A)  10.90 percent
B)  11.18 percent
C)  13.56 percent
D)  14.76 percent
E)  15.01 percentF) B) and C)
G) A) and E)

Question 18

Which one of the following earned the highest risk premium over the period 1926-2007?

Accepted Answer

A)  long-term corporate bonds
B)  U.S.Treasury bills
C)  small-company stocks
D)  large-company stocks
E)  long-term government bondsF) A) and D)
G) B) and E)

Question 19

Stacy purchased a stock last year and sold it today for $3 a share more than her purchase price. She received a total of $0.75 in dividends. Which one of the following statements is correct in relation to this investment?

Accepted Answer

A)  The dividend yield is expressed as a percentage of the selling price.
B)  The capital gain would have been less had Stacy not received the dividends.
C)  The total dollar return per share is $3.
D)  The capital gains yield is positive.
E)  The dividend yield is greater than the capital gains yield.F) A) and B)
G) C) and D)

Question 20

Over a 34-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 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)  11.27 percent
C)  11.84 percent
D)  12.32 percent
E)  12.46 percentF) A) and B)
G) C) and E)

Exam 12: Some Lessons From Capital Market History

Six months ago, you purchased 100 shares of stock in Global Trading at a price of $38.70 a share. The stock pays a quarterly dividend of $0.15 a share. Today, you sold all of your shares for $40.10 per share. What is the total amount of your dividend income on this investment?

Correct AnswerverifiedShow Answer

How can an investor lose money on a stock while making money on a bond investment if there is a reward for bearing risk? Aren't stocks riskier than bonds?

Correct AnswerverifiedThere is a reward for bearing risk over ...View AnswerShow 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

Four months ago, you purchased 1,500 shares of Lakeside Bank stock for $11.20 a share. You have received dividend payments equal to $0.25 a share. Today, you sold all of your shares for $8.60 a share. What is your total dollar return on this investment?

Correct AnswerverifiedShow Answer

You just sold 600 shares of Wesley, Inc. stock at a price of $31.09 a share. Last year, you paid $30.92 a share to buy this stock. Over the course of the year, you received dividends totaling $1.20 per share. What is your total capital gain on this investment?

Correct AnswerverifiedShow Answer

Inside information has the least value when financial markets are:

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

According to theory, studying historical stock price movements to identify mispriced stocks:

Correct AnswerverifiedShow Answer

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2007?

Correct AnswerverifiedShow Answer

Stacy purchased a stock last year and sold it today for $3 a share more than her purchase price. She received a total of $0.75 in dividends. Which one of the following statements is correct in relation to this investment?

Correct AnswerverifiedShow Answer

A stock had the following prices and dividends. What is the geometric average return on this stock?

Correct AnswerverifiedShow Answer

Over a 34-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 percent. Using Blume's formula, what is your best estimate of the future annual returns over the next 10 years?

Correct AnswerverifiedShow Answer

The return earned in an average year over a multi-year period is called the _____ average return.

Correct AnswerverifiedShow Answer

To convince investors to accept greater volatility, you must:

Correct AnswerverifiedShow Answer

A stock had returns of 12 percent, 16 percent, 13 percent, 19 percent, 15 percent, and -6 percent over the last six years. What is the geometric average return on the stock for this period?

Correct AnswerverifiedShow Answer

Which one of the following correctly describes the dividend yield?

Correct AnswerverifiedShow Answer

Calculate the standard deviation of the following rates of return:

Correct AnswerverifiedShow Answer

If you excel in analyzing the future outlook of firms, you would prefer the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Correct AnswerverifiedShow Answer

Which one of the following earned the highest risk premium over the period 1926-2007?

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

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