Question 1

What was the average rate of inflation over the period of 1926-2010?

Accepted Answer

A) less than 2.0 percent 
B) between 2.0 and 2.5 percent 
C) between 2.5 and 3.0 percent 
D) between 3.0 and 3.5 percent 
E) greater than 3.5 percent 
A) less than 2.0 percent 
B) between 2.0 and 2.5 percent 
C) between 2.5 and 3.0 percent 
D) between 3.0 and 3.5 percent 
E) greater than 3.5 percent D

Question 2

A stock had returns of 14 percent, 13 percent, -10 percent, and 7 percent for the past four years.Which one of the following best describes the probability that this stock will lose no more than 10 percent in any one 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 percent 
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 percent D

Question 3

As long as the inflation rate is positive, the real rate of return on a security will be ____ the nominal rate of return.

Accepted Answer

A) greater than 
B) equal to 
C) less than 
D) greater than or equal to 
E) unrelated to 
A) greater than 
B) equal to 
C) less than 
D) greater than or equal to 
E) unrelated to C

Question 4

Which one of the following statements is correct?

Accepted Answer

A) The greater the volatility of returns, the greater the risk premium. 
B) The lower the volatility of returns, the greater the risk premium. 
C) The lower the average return, the greater the risk premium. 
D) The risk premium is unrelated to the average rate of return. 
E) The risk premium is not affected by the volatility of returns. 
A) The greater the volatility of returns, the greater the risk premium. 
B) The lower the volatility of returns, the greater the risk premium. 
C) The lower the average return, the greater the risk premium. 
D) The risk premium is unrelated to the average rate of return. 
E) The risk premium is not affected by the volatility of returns.

Question 5

Which one of the following is most indicative of a totally efficient stock market?

Accepted Answer

A) extraordinary returns earned on a routine basis 
B) positive net present values on stock investments over the long-term 
C) zero net present values for all stock investments 
D) arbitrage opportunities which develop on a routine basis 
E) realizing negative returns on a routine basis 
A) extraordinary returns earned on a routine basis 
B) positive net present values on stock investments over the long-term 
C) zero net present values for all stock investments 
D) arbitrage opportunities which develop on a routine basis 
E) realizing negative returns on a routine basis

Question 6

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) real 
A) arithmetic 
B) standard 
C) variant 
D) geometric 
E) real

Question 7

Which one of the following earned the highest risk premium over the period 1926-2010?

Accepted Answer

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

Question 8

A stock had returns of 16 percent, 4 percent, 8 percent, 14 percent, -9 percent, and -5 percent over the past six years.What is the geometric average return for this time period?

Accepted Answer

A) 4.26 percent 
B) 4.67 percent 
C) 5.13 percent 
D) 5.39 percent 
E) 5.60 percent 
A) 4.26 percent 
B) 4.67 percent 
C) 5.13 percent 
D) 5.39 percent 
E) 5.60 percent

Question 9

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 3 percent, -10 percent, 24 percent, 22 percent, and 12 percent.Suppose the average inflation rate over this time period was 3.6 percent and the average T-bill rate was 4.8 percent.Based on this information, what was the average nominal risk premium?

Accepted Answer

A) 5.15 percent 
B) 5.40 percent 
C) 6.01 percent 
D) 6.37 percent 
E) 6.60 percent 
A) 5.15 percent 
B) 5.40 percent 
C) 6.01 percent 
D) 6.37 percent 
E) 6.60 percent

Question 10

Assume that you invest in a portfolio of large-company stocks.Further assume that the portfolio will earn a rate of return similar to the average return on large-company stocks for the period 1926-2010.What rate of return should you expect to earn?

Accepted Answer

A) less than 10 percent 
B) between 10 and 12.5 percent 
C) between 12.5 and 15 percent 
D) between 15 and 17.5 percent 
E) more than 17.5 percent 
A) less than 10 percent 
B) between 10 and 12.5 percent 
C) between 12.5 and 15 percent 
D) between 15 and 17.5 percent 
E) more than 17.5 percent

Question 11

A stock had returns of 12 percent, 16 percent, 10 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) 10.68 percent 
C) 13.56 percent 
D) 14.76 percent 
E) 15.01 percent 
A) 10.90 percent 
B) 10.68 percent 
C) 13.56 percent 
D) 14.76 percent 
E) 15.01 percent

Question 12

Which of the following statements are true based on the historical record for 1926-2010?
I.Risk and potential reward are inversely related.
II.Risk-free securities produce a positive real rate of return each year.
III.Returns are more predictable over the short-term than they are over the long-term.
IV.Bonds are generally a safer investment than are stocks.

Accepted Answer

A) I only 
B) IV only 
C) II and III only 
D) II and IV only 
E) II, III, and IV only 
A) I only 
B) IV only 
C) II and III only 
D) II and IV only 
E) II, III, and IV only

Question 13

Suppose a stock had an initial price of $80 per share, paid a dividend of $1.35 per share during the year, and had an ending share price of $87.What was the capital gains yield?

Accepted Answer

A) 1.55 percent 
B) 1.69 percent 
C) 8.05 percent 
D) 8.75 percent 
E) 10.44 percent 
A) 1.55 percent 
B) 1.69 percent 
C) 8.05 percent 
D) 8.75 percent 
E) 10.44 percent

Question 14

Which one of the following statements concerning U.S.Treasury bills is correct for the period 1926- 2010?

Accepted Answer

A) The annual rate of return always exceeded the annual inflation rate. 
B) The average risk premium was 0.7 percent. 
C) The annual rate of return was always positive. 
D) The average excess return was 1.1 percent. 
E) The average real rate of return was zero. 
A) The annual rate of return always exceeded the annual inflation rate. 
B) The average risk premium was 0.7 percent. 
C) The annual rate of return was always positive. 
D) The average excess return was 1.1 percent. 
E) The average real rate of return was zero.

Question 15

You find a certain stock that had returns of 4 percent, -5 percent, -15 percent, and 16 percent for four of the last five years.The average return of the stock for the 5-year period was 13 percent.What is the standard deviation of the stock's returns for the five-year period?

Accepted Answer

A) 21.39 percent 
B) 24.98 percent 
C) 27.16 percent 
D) 31.23 percent 
E) 34.02 percent 
A) 21.39 percent 
B) 24.98 percent 
C) 27.16 percent 
D) 31.23 percent 
E) 34.02 percent

Question 16

Which of the following correspond to a wide frequency distribution?
I.relatively low risk
II.relatively low rate of return
III.relatively high standard deviation
IV.relatively large risk premium

Accepted Answer

A) II only 
B) III only 
C) I and II only 
D) II and III only 
E) III and IV only 
A) II only 
B) III only 
C) I and II only 
D) II and III only 
E) III and IV only

Question 17

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Accepted Answer

A) 1.68 percent 
B) 1.72 percent 
C) 1.83 percent 
D) 1.13 percent 
E) 1.21 percent 
A) 1.68 percent 
B) 1.72 percent 
C) 1.83 percent 
D) 1.13 percent 
E) 1.21 percent

Question 18

If the variability of the returns on large-company stocks were to increase over the long-term, you would expect which of the following to occur as a result?
I.decrease in the average rate of return
II.increase in the risk premium
III.increase in the 68 percent probability range of the frequency distribution of returns
IV.decrease in the standard deviation

Accepted Answer

A) I only 
B) IV only 
C) II and III only 
D) I and III only 
E) II and IV only 
A) I only 
B) IV only 
C) II and III only 
D) I and III only 
E) II and IV only

Question 19

Over a 30-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 5 years?

Accepted Answer

A) 11.18 percent 
B) 12.27 percent 
C) 11.84 percent 
D) 12.66 percent 
E) 12.46 percent 
A) 11.18 percent 
B) 12.27 percent 
C) 11.84 percent 
D) 12.66 percent 
E) 12.46 percent

Question 20

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 percent 
A) 10.79 percent 
B) 12.60 percent 
C) 13.48 percent 
D) 14.42 percent 
E) 15.08 percent

What was the average rate of inflation over the period of 1926-2010?

A stock had returns of 14 percent, 13 percent, -10 percent, and 7 percent for the past four years.Which one of the following best describes the probability that this stock will lose no more than 10 percent in any one year?

As long as the inflation rate is positive, the real rate of return on a security will be ____ the nominal rate of return.

Which one of the following statements is correct?

Which one of the following is most indicative of a totally efficient stock market?

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

Which one of the following earned the highest risk premium over the period 1926-2010?

A stock had returns of 16 percent, 4 percent, 8 percent, 14 percent, -9 percent, and -5 percent over the past six years.What is the geometric average return for this time period?

Assume that you invest in a portfolio of large-company stocks.Further assume that the portfolio will earn a rate of return similar to the average return on large-company stocks for the period 1926-2010.What rate of return should you expect to earn?

A stock had returns of 12 percent, 16 percent, 10 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?

Suppose a stock had an initial price of $80 per share, paid a dividend of $1.35 per share during the year, and had an ending share price of $87.What was the capital gains yield?

Which one of the following statements concerning U.S.Treasury bills is correct for the period 1926- 2010?

You find a certain stock that had returns of 4 percent, -5 percent, -15 percent, and 16 percent for four of the last five years.The average return of the stock for the 5-year period was 13 percent.What is the standard deviation of the stock's returns for the five-year period?

Which of the following correspond to a wide frequency distribution? I.relatively low risk II.relatively low rate of return III.relatively high standard deviation IV.relatively large risk premium

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Over a 30-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 5 years?

Calculate the standard deviation of the following rates of return:

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Bond Valuation

Equity Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Recent Capital Market History

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Financial Planning and Management

International Corporate Finance

Behavioural Finance

Financial Risk Management

Options and Corporate Finance

Filters

Exam 12: Return, Risk and the Security Market

What was the average rate of inflation over the period of 1926-2010?

A stock had returns of 14 percent, 13 percent, -10 percent, and 7 percent for the past four years.Which one of the following best describes the probability that this stock will lose no more than 10 percent in any one year?

As long as the inflation rate is positive, the real rate of return on a security will be ____ the nominal rate of return.

Which one of the following statements is correct?

Which one of the following is most indicative of a totally efficient stock market?

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

Which one of the following earned the highest risk premium over the period 1926-2010?

A stock had returns of 16 percent, 4 percent, 8 percent, 14 percent, -9 percent, and -5 percent over the past six years.What is the geometric average return for this time period?

Assume that you invest in a portfolio of large-company stocks.Further assume that the portfolio will earn a rate of return similar to the average return on large-company stocks for the period 1926-2010.What rate of return should you expect to earn?

A stock had returns of 12 percent, 16 percent, 10 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?

Suppose a stock had an initial price of $80 per share, paid a dividend of $1.35 per share during the year, and had an ending share price of $87.What was the capital gains yield?

Which one of the following statements concerning U.S.Treasury bills is correct for the period 1926- 2010?

You find a certain stock that had returns of 4 percent, -5 percent, -15 percent, and 16 percent for four of the last five years.The average return of the stock for the 5-year period was 13 percent.What is the standard deviation of the stock's returns for the five-year period?

Which of the following correspond to a wide frequency distribution? I.relatively low risk II.relatively low rate of return III.relatively high standard deviation IV.relatively large risk premium

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Over a 30-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 5 years?

Calculate the standard deviation of the following rates of return:

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Bond Valuation

Equity Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Recent Capital Market History

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Financial Planning and Management

International Corporate Finance

Behavioural Finance

Financial Risk Management

Options and Corporate Finance

Filters