Exam 12: Return, Risk and the Security Market

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 2 percent, -12 percent, 16 percent, 22 percent, and 18 percent.What is the variance of these returns?

Which one of the following is defined by its mean and its standard deviation?

Small-company stocks, as the term is used in the textbook, are best defined as the:

Shawn earned an average return of 14.6 percent on his investments over the past 20 years while the S&P 500, a measure of the overall market, only returned an average of 13.9 percent.Explain how this can occur if the stock market is efficient.

The real rate of return on a stock is approximately equal to the nominal rate of return:

Over the past five years, a stock produced returns of 11 percent, 14 percent, 4 percent, -9 percent, and 5 percent.What is the probability that an investor in this stock will not lose more than 10 percent in any one given year?

Which one of the following correctly describes the dividend yield?

Based on past 23 years, Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

You want to invest in an index fund which directly correlates to the overall U.S.stock market.How can you determine if the market risk premium you are expecting to earn is reasonable for the long-term?

You bought one of Great White Shark Repellant Co.'s 10 percent coupon bonds one year ago for $815.These bonds pay annual payments, have a face value of $1,000, and mature 14 years from now.Suppose you decide to sell your bonds today when the required return on the bonds is 14 percent.The inflation rate over the past year was 3.7 percent.What was your total real return on this investment?

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?

Last year, you purchased 500 shares of Analog Devices, Inc.stock for $11.16 a share.You have received a total of $120 in dividends and $7,190 from selling the shares.What is your capital gains yield on this stock?

To convince investors to accept greater volatility, you must:

Which one of the following time periods is associated with high rates of inflation?

Which one of the following statements correctly applies to the period 1926-2010?

The excess return is computed as the:

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?

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities.Which one of the following terms best defines that market?

What are the two primary lessons learned from capital market history? Use historical information to justify that these lessons are correct.

What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?