Exam 10: Investment Returns and Aggregate Measures of Stock Markets

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

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

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.

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

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

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

The Russell 1000 index

An investment's internal rate of return equates

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

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?

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

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

With dollar-cost averaging, the investor purchases more securities when their prices rise.

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.

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

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

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

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

The S&P 500 uses