Exam 10: Risk and Return: Lessons From Market History

Today,you sold 200 shares of SLG,Inc. stock. Your total return on these shares is 12.5%. You purchased the shares one year ago at a price of $28.50 a share. You have received a total of $280 in dividends over the course of the year. What is your capital gains yield on this investment?

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Question 1

Correct Answer:

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What securities have offered the highest average annual returns over the last several decades? Can we conclude that return and risk are related in real life?

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Question 2

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The purpose of this question is to check student understanding of the capital market history discussion of the chapter,as well as to reiterate the concept of the risk-return trade-off. The securities categories discussed in the chapter are listed below in descending order of historical returns (and risk):
1. small company stocks
2. large company stocks
3. long-term corporate bonds
4. long-term government bonds
5. U.S. Treasury bills
By learning this hierarchy,and given that they are familiar with the attributes of each security,students should be left with little doubt that the maxim "The greater the risk,the greater the return" is an apt description of financial markets.

The average compound return earned per year over a multi-year period is called the _____ average return.

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Question 3

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What are the arithmetic and geometric average returns for a stock with annual returns of 21%,8%,-32%,41%,and 5%?

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Question 4

A capital gain occurs when:

(Multiple Choice)

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Question 5

Capital market history shows us that the average return relationship from lowest to highest between securities is:

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Question 6

Which of the following statements are correct concerning the variance of the annual returns on an investment? I. The larger the variance,the more the actual returns tend to differ from the average return. II. The larger the variance,the larger the standard deviation. III. The larger the variance,the greater the risk of the investment. IV. The larger the variance,the higher the expected return.

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Question 7

You purchased 300 shares of Deltona,Inc. stock for $44.90 a share. You have received a total of $630 in dividends and $14,040 in proceeds from selling the shares. What is your capital gains yield on this stock?

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Question 8

One year ago,you purchased a stock at a price of $32 a share. Today,you sold the stock and realized a total return of 25%. Your capital gain was $6 a share. What was your dividend yield on this stock?

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Question 9

Six months ago,you purchased 100 shares of stock in ABC Co. at a price of $43.89 a share. ABC stock pays a quarterly dividend of $.10 a share. Today,you sold all of your shares for $45.13 per share. What is the total amount of your capital gains on this investment?

(Multiple Choice)

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Question 10

You purchased 300 shares of stock at a price of $37.23 per share. Over the last year,you have received total dividend income of $351. What is the dividend yield?

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Question 11

One year ago,you purchased a stock at a price of $60 a share. Today,you sold the stock and realized a total return of 30%. Your capital gain was $8 a share. What was your dividend yield on this stock?

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Question 12

You earned a total return of -5% on NoDotCom this year,earned -40% last year,and earned 30% two years ago. Calculate both the three-year holding period return and the average three year return.

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Question 13

Winslow,Inc. stock is currently selling for $40 a share. The stock has a dividend yield of 3.8%. How much dividend income will you receive per year if you purchase 500 shares of this stock?

(Multiple Choice)

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Question 14

The variance of returns is computed by dividing the sum of the:

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Question 15

Excelsior shares are currently selling for $25 each. You bought 200 shares one year ago at $24 and received dividend payments of $1.50 per share. What was your percentage capital gain this year?

(Multiple Choice)

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Question 16

A portfolio of large company stocks would contain which one of the following types of securities?

(Multiple Choice)

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Question 17

Estimates using the arithmetic average will probably tend to _ values over the long-term while estimates using the geometric average will probably tend to _ values over the short-term.

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Question 18

Eight months ago,you purchased 400 shares of Winston,Inc. stock at a price of $54.90 a share. The company pays quarterly dividends of $.50 a share. Today,you sold all of your shares for $49.30 a share. What is your total percentage return on this investment?

(Multiple Choice)

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Question 19

The return pattern on your favorite stock has been 5%,8%,-12%,15%,21% over the last five years. What has been your average return and holding period return over the last 5 years?

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Question 20

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Exam 10: Risk and Return: Lessons From Market History

Today,you sold 200 shares of SLG,Inc. stock. Your total return on these shares is 12.5%. You purchased the shares one year ago at a price of $28.50 a share. You have received a total of $280 in dividends over the course of the year. What is your capital gains yield on this investment?

What securities have offered the highest average annual returns over the last several decades? Can we conclude that return and risk are related in real life?

The average compound return earned per year over a multi-year period is called the _____ average return.

What are the arithmetic and geometric average returns for a stock with annual returns of 21%,8%,-32%,41%,and 5%?

A capital gain occurs when:

Capital market history shows us that the average return relationship from lowest to highest between securities is:

You purchased 300 shares of Deltona,Inc. stock for $44.90 a share. You have received a total of $630 in dividends and $14,040 in proceeds from selling the shares. What is your capital gains yield on this stock?

One year ago,you purchased a stock at a price of $32 a share. Today,you sold the stock and realized a total return of 25%. Your capital gain was $6 a share. What was your dividend yield on this stock?

Six months ago,you purchased 100 shares of stock in ABC Co. at a price of $43.89 a share. ABC stock pays a quarterly dividend of $.10 a share. Today,you sold all of your shares for $45.13 per share. What is the total amount of your capital gains on this investment?

You purchased 300 shares of stock at a price of $37.23 per share. Over the last year,you have received total dividend income of $351. What is the dividend yield?

One year ago,you purchased a stock at a price of $60 a share. Today,you sold the stock and realized a total return of 30%. Your capital gain was $8 a share. What was your dividend yield on this stock?

You earned a total return of -5% on NoDotCom this year,earned -40% last year,and earned 30% two years ago. Calculate both the three-year holding period return and the average three year return.

Winslow,Inc. stock is currently selling for $40 a share. The stock has a dividend yield of 3.8%. How much dividend income will you receive per year if you purchase 500 shares of this stock?

The variance of returns is computed by dividing the sum of the:

Excelsior shares are currently selling for $25 each. You bought 200 shares one year ago at $24 and received dividend payments of $1.50 per share. What was your percentage capital gain this year?

A portfolio of large company stocks would contain which one of the following types of securities?

Estimates using the arithmetic average will probably tend to _____ values over the long-term while estimates using the geometric average will probably tend to _____ values over the short-term.

Eight months ago,you purchased 400 shares of Winston,Inc. stock at a price of $54.90 a share. The company pays quarterly dividends of $.50 a share. Today,you sold all of your shares for $49.30 a share. What is your total percentage return on this investment?

The return pattern on your favorite stock has been 5%,8%,-12%,15%,21% over the last five years. What has been your average return and holding period return over the last 5 years?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

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Estimates using the arithmetic average will probably tend to _ values over the long-term while estimates using the geometric average will probably tend to _ values over the short-term.