Exam 10: Investment Returns and Aggregate Measures of Stock Markets

Realized returns should include both dividends and price changes.

Dollar?cost averaging is achieved by periodic, equal dollar investments.

The Russell 3000 is a broad-based measure of bond prices.

You sold 200 shares of DOG short for $24. After three years you closed your position at $17. DOG paid an annual dividend of $1, what was the annualized (compound) return on the trade? SOLUTIONS TO PROBLEMS

The Dow Jones industrial and utility averages include a relatively small number of stocks.

Aggregate measures of stock prices include dividend income.

The S&P 500 uses

The calculation of a rate of return assumes dividend income is reinvested at the current dividend yield.

The Wilshire 5000 stock index is more broad based than the S&P 500 stock index.

Holding period returns for greater than a year do not give an accurate measure of the true rate of return.

Averaging down will prove to be profitable only if the price of the stock subsequently rises.

Studies of investment returns suggest that investors can expect to earn at least 15 percent annually.

Given the following information concerning three stocks, construct a simple average, a value-weighted average, and a geometric average. b. What are averages if each price rises to $11, $17, and $35, respectively? c. What is the percentage increase in each average?

Comparisons of stock performance should use percentage changes instead of absolute price changes.

The S&P 500 stock index is more sensitive to changes in the prices of small stocks than the stocks of large companies.

Historical studies of rates of return on large Stocks suggest

The Standard & Poor's 500 stock index illustrates

Aggregate securities prices may be measured by using value?weighted or geometric averages.

Bond averages that are expressed in percentages are not comparable to the S&P 500.

If a stock increased from $25 to $50 in five years, the annual rate of return was 20 percent.