Question 1

A strategy of averaging down will be profitable if

Accepted Answer

A)  the price of the stock continues to fall 
B)  the firm pays more dividends 
C)  the firm retains earnings 
D)  the price of the stock subsequently rises 
A)  the price of the stock continues to fall 
B)  the firm pays more dividends 
C)  the firm retains earnings 
D)  the price of the stock subsequently rises D

Question 2

You bought a stock for $28.29 that paid the following dividends
Year 1 2 3
Dividend $1.00 $1.50 $1.80
After the third year, you sold the stock for $35. What was the annual rate of return?

Accepted Answer

3
Select a rate and determine if it equates both sides of the equation. For example, select 12 percent:
$1(.893) + 1.50(.797) + 1.80(.712) + 35(.712) = $28.29
The annual rate of return is 12 percent (Using a financial calculator requires entering the unequal cash inflows).

Question 3

Movements in individual stock prices tend to be

Accepted Answer

A)  positively correlated 
B)  positively correlated with inflation 
C)  negatively correlated 
D)  positively correlated with changes in interest rates
PROBLEMS 
A)  positively correlated 
B)  positively correlated with inflation 
C)  negatively correlated 
D)  positively correlated with changes in interest rates
PROBLEMS A

Question 4

Studies of realized rates of return assume that
Dividend income is not reinvested.

Accepted Answer

A) True 
 B)False

Question 5

Over time, holding period returns tend to overstate
the true annualized rate of return.

Accepted Answer

A) True 
 B)False

Question 6

The S&P 500 stock index is value-weighted.

Accepted Answer

A) True 
 B)False

Question 7

Movements in stock prices are often illustrated using relative (percentage) price changes instead of absolute price changes.

Accepted Answer

A) True 
 B)False

Question 8

Dollar cost averaging is

Accepted Answer

A)  periodically buying a round lot of stock 
B)  periodically investing a specified dollar amount in a stock 
C)  a means to increase the average cost basis 
D)  a means to insure a positive return 
A)  periodically buying a round lot of stock 
B)  periodically investing a specified dollar amount in a stock 
C)  a means to increase the average cost basis 
D)  a means to insure a positive return

Question 9

Stock indices do not consider taxes on capital gains.

Accepted Answer

A) True 
 B)False

Question 10

An investment's internal rate of return equates

Accepted Answer

A)  dividend payments and capital gains 
B)  cash outflows and subsequent cash inflows 
C)  initial cash outflow and the sale price 
D)  dividend payments and the investment's cost 
A)  dividend payments and capital gains 
B)  cash outflows and subsequent cash inflows 
C)  initial cash outflow and the sale price 
D)  dividend payments and the investment's cost

Question 11

You bought a stock for $20 and sold it for $59.72 after six years. What was the annual rate of return?

Accepted Answer

$20(1 + g)6 = $59.72
(1 + g)6 = $59.72/$

Question 12

Averaging down may result in the investor sending good money after bad.

Accepted Answer

A) True 
 B)False

Question 13

To determine the realized return on an investment, the investor needs to know
1) income received
2) the cost of an investment
3) the sale price of the investment

Accepted Answer

A)  1 and 2 
B)  1 and 3 
C)  2 and 3 
D)  all of the above 
A)  1 and 2 
B)  1 and 3 
C)  2 and 3 
D)  all of the above

Question 14

Indices of Nasdaq stocks tend to be less volatile than the S&P 500 index.

Accepted Answer

A) True 
 B)False

Question 15

The Russell 1000 index

Accepted Answer

A)  combines 1000 stocks and bonds 
B)  uses the 1000 largest Nasdaq stocks 
C)  is a broad measure of listed and over-the-counter (Nasdaq) stocks 
D)  is a broad-based measure of bonds 
A)  combines 1000 stocks and bonds 
B)  uses the 1000 largest Nasdaq stocks 
C)  is a broad measure of listed and over-the-counter (Nasdaq) stocks 
D)  is a broad-based measure of bonds

Question 16

Studies of investments returns (e.g., the Ibbotson Associates studies of investment returns) determined that large-cap stocks in the S&P earned higher returns than the smaller companies.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is the least broad-based
Measure of stock prices?

Accepted Answer

A)  Nasdaq market index 
B)  Dow Jones industrial average 
C)  S&P 500 stock index 
D)  Russell 3000 
A)  Nasdaq market index 
B)  Dow Jones industrial average 
C)  S&P 500 stock index 
D)  Russell 3000

Question 18

Historical studies of investment returns suggest that the stocks of small companies generate higher returns than the stocks of larger companies.

Accepted Answer

A) True 
 B)False

Question 19

The market consists of the following stocks. Their prices and number of shares are as follows:
   
a. The price of Stock C doubles to $60. What is the percentage increase in the market if a S&P 500 type of measure of the market (value-weighted average) is used?
b. Repeat question (a) but use a Value Line type of measure of the market (i.e., a geometric average) to determine the percentage increase.
c. Suppose the price of stock B doubled instead of stock C. How would the market have fared using the aggregate measures employed in (a) and (b)? Why are your answers different?

Accepted Answer

The S&P 500 uses a value?weighted averag

Question 20

If a stock rose from $10 to $30 over ten years, the
Annual rate of return

Accepted Answer

A)  was 20 percent 
B)  was greater than 20 percent 
C)  was less than 20 percent 
D)  cannot be determined 
A)  was 20 percent 
B)  was greater than 20 percent 
C)  was less than 20 percent 
D)  cannot be determined

A strategy of averaging down will be profitable if

You bought a stock for $28.29 that paid the following dividends Year 1 2 3 Dividend $1.00 $1.50 $1.80 After the third year, you sold the stock for $35. What was the annual rate of return?

Movements in individual stock prices tend to be

Studies of realized rates of return assume that Dividend income is not reinvested.

Over time, holding period returns tend to overstate the true annualized rate of return.

The S&P 500 stock index is value-weighted.

Movements in stock prices are often illustrated using relative (percentage) price changes instead of absolute price changes.

Dollar cost averaging is

Stock indices do not consider taxes on capital gains.

An investment's internal rate of return equates

You bought a stock for $20 and sold it for $59.72 after six years. What was the annual rate of return?

Averaging down may result in the investor sending good money after bad.

To determine the realized return on an investment, the investor needs to know 1) income received 2) the cost of an investment 3) the sale price of the investment

Indices of Nasdaq stocks tend to be less volatile than the S&P 500 index.

The Russell 1000 index

Studies of investments returns (e.g., the Ibbotson Associates studies of investment returns) determined that large-cap stocks in the S&P earned higher returns than the smaller companies.

Which of the following is the least broad-based Measure of stock prices?

Historical studies of investment returns suggest that the stocks of small companies generate higher returns than the stocks of larger companies.

If a stock rose from $10 to $30 over ten years, the Annual rate of return

An Introduction to Investmentsprivate

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Financial Planning, Taxation, and the Efficiency of Financial Markets

Risk and Portfolio Management

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Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs-private

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The Macroeconomic Environment for Investment

Behavioral Finance and Technical Analysis

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The Valuation of Fixed Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

An Introduction to Options

Option Valuation and Strategiesprivate

Commodity and Financial Futuresprivate

Financial Planning and Investing in an Efficient Market Context

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Exam 10: Investment Returns and Aggregate Measures of Stock Markets

A strategy of averaging down will be profitable if

You bought a stock for $28.29 that paid the following dividends Year 1 2 3 Dividend $1.00 $1.50 $1.80 After the third year, you sold the stock for $35. What was the annual rate of return?

Movements in individual stock prices tend to be

Studies of realized rates of return assume that Dividend income is not reinvested.

Over time, holding period returns tend to overstate the true annualized rate of return.

The S&P 500 stock index is value-weighted.

Movements in stock prices are often illustrated using relative (percentage) price changes instead of absolute price changes.

Dollar cost averaging is

Stock indices do not consider taxes on capital gains.

An investment's internal rate of return equates

You bought a stock for $20 and sold it for $59.72 after six years. What was the annual rate of return?

Averaging down may result in the investor sending good money after bad.

To determine the realized return on an investment, the investor needs to know 1) income received 2) the cost of an investment 3) the sale price of the investment

Indices of Nasdaq stocks tend to be less volatile than the S&P 500 index.

The Russell 1000 index

Studies of investments returns (e.g., the Ibbotson Associates studies of investment returns) determined that large-cap stocks in the S&P earned higher returns than the smaller companies.

Which of the following is the least broad-based Measure of stock prices?

Historical studies of investment returns suggest that the stocks of small companies generate higher returns than the stocks of larger companies.

If a stock rose from $10 to $30 over ten years, the Annual rate of return

An Introduction to Investmentsprivate

Securities Markets

The Time Value of Moneyprivate

Financial Planning, Taxation, and the Efficiency of Financial Markets

Risk and Portfolio Management

Investment Companies: Mutual Fundsprivate

Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs-private

Stockprivate

The Valuation of Stockprivate

The Macroeconomic Environment for Investment

Behavioral Finance and Technical Analysis

The Bond Marketprivate

The Valuation of Fixed Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

An Introduction to Options

Option Valuation and Strategiesprivate

Commodity and Financial Futuresprivate

Financial Planning and Investing in an Efficient Market Context

Filters