Question 1

Which one of these statements correctly reflects historical history for the period 1926-2015?

Accepted Answer

A) Large-company stocks have never returned more than 40 percent in a single year. 
B) There is a direct relationship between the annual returns on large-company stocks and long-term government bonds. 
C) U.S.Treasury bills have had a positive rate of return every single year. 
D) The return on U.S.Treasury bills has exceeded the rate of inflation every single year. 
E) The rate of inflation as measured by the consumer price index has been positive every single year. 
A) Large-company stocks have never returned more than 40 percent in a single year. 
B) There is a direct relationship between the annual returns on large-company stocks and long-term government bonds. 
C) U.S.Treasury bills have had a positive rate of return every single year. 
D) The return on U.S.Treasury bills has exceeded the rate of inflation every single year. 
E) The rate of inflation as measured by the consumer price index has been positive every single year.

Question 2

The histograms of the returns on large-company and small-company stocks for the period 1926 to 2015 show that

Accepted Answer

A) large-company stocks never lost more than 20 percent in any one year. 
B) 1945 was the best-performing year for both large-company and small-company stocks. 
C) small-company stocks most commonly return 30 to 40 percent. 
D) small-company stocks are more volatile than large-company stocks. 
E) large-company stocks are riskier than small-company stocks. 
A) large-company stocks never lost more than 20 percent in any one year. 
B) 1945 was the best-performing year for both large-company and small-company stocks. 
C) small-company stocks most commonly return 30 to 40 percent. 
D) small-company stocks are more volatile than large-company stocks. 
E) large-company stocks are riskier than small-company stocks.

Question 3

A stock had annual returns of 9 percent,−16 percent,14 percent,and 2 percent over the past 4 years.What is the standard deviation of these returns?

Accepted Answer

A) 11.33% 
B) 16.09% 
C) 9.10% 
D) 13.12% 
E) 7.99% 
A) 11.33% 
B) 16.09% 
C) 9.10% 
D) 13.12% 
E) 7.99%

Question 4

You are comparing the returns of two portfolios for a 10-year period.Portfolio I has a lower dispersion of returns and a higher average rate of return than Portfolio II.Given this,what do you know with certainty?

Accepted Answer

A) Portfolio I has a lower standard deviation than Portfolio II. 
B) Portfolio I is riskier than Portfolio II. 
C) Portfolio II has less total risk than Portfolio I. 
D) Portfolio I will outperform Portfolio II over the next 10 years. 
E) Portfolio II consists of more individual stocks than Portfolio I. 
A) Portfolio I has a lower standard deviation than Portfolio II. 
B) Portfolio I is riskier than Portfolio II. 
C) Portfolio II has less total risk than Portfolio I. 
D) Portfolio I will outperform Portfolio II over the next 10 years. 
E) Portfolio II consists of more individual stocks than Portfolio I.

Question 5

Assume inflation averaged 1.2 percent during a period in which U.S.Treasury bills earned 1.3 percent.What was the rate of return on large-company stocks if the risk premium on those stocks was 6.8 percent for the period?

Accepted Answer

A) 8.1% 
B) 8.0% 
C) 7.9% 
D) 9.3% 
E) 9.2% 
A) 8.1% 
B) 8.0% 
C) 7.9% 
D) 9.3% 
E) 9.2%

Question 6

For the period 1926 to 2015,the mean return on large-company stocks is

Accepted Answer

A) 8.7 percent. 
B) 11.9 percent. 
C) 13.2 percent. 
D) 9.6 percent. 
E) 14.1 percent. 
A) 8.7 percent. 
B) 11.9 percent. 
C) 13.2 percent. 
D) 9.6 percent. 
E) 14.1 percent.

Question 7

Kurt's Toy Co.has total annual returns for the past 5 years of -8.2 percent,11.7 percent,-6.4 percent,18.7 percent,and 6.8 percent.What is the 5-year holding period return?

Accepted Answer

A) 9.00% 
B) 17.50% 
C) 22.60% 
D) 21.67% 
E) 20.33% 
A) 9.00% 
B) 17.50% 
C) 22.60% 
D) 21.67% 
E) 20.33%

Question 8

Assume a $1 investment in a stock 23 years ago is now worth $28.82.What is the geometric average return for the period?

Accepted Answer

A) 13.52% 
B) 15.74% 
C) 22.08% 
D) 25.30% 
E) 19.03% 
A) 13.52% 
B) 15.74% 
C) 22.08% 
D) 25.30% 
E) 19.03%

Question 9

If you examine the U.S.stock market risk premium by extending the 1926 to 2015 time period backwards in time to 1802 (given the available information),the risk premium

Accepted Answer

A) decreases to 5.2 percent. 
B) increases to 7.6 percent. 
C) decreases to 3.9 percent. 
D) increases to 7.1 percent. 
E) decreases to 6.3 percent. 
A) decreases to 5.2 percent. 
B) increases to 7.6 percent. 
C) decreases to 3.9 percent. 
D) increases to 7.1 percent. 
E) decreases to 6.3 percent.

Question 10

In 2008,the S&P 500 index

Accepted Answer

A) declined in value every month. 
B) declined almost 17 percent in 1 month. 
C) increased in value during 2 months. 
D) never increased by more than 2 percent in any 1 month. 
E) increased in value during the first 3 months. 
A) declined in value every month. 
B) declined almost 17 percent in 1 month. 
C) increased in value during 2 months. 
D) never increased by more than 2 percent in any 1 month. 
E) increased in value during the first 3 months.

Question 11

Suppose a portfolio had an arithmetic average return of 8 percent for a 4-year period.Which one of these statements must be true regarding this portfolio for the period?

Accepted Answer

A) At least one of the 4 years produced an annual rate of return of 8 percent. 
B) If the standard deviation of the portfolio is greater than zero,then the geometric average portfolio return is less than 8 percent. 
C) The standard deviation of the portfolio must be lower than the standard deviation of a comparable portfolio that had an arithmetic average return of 9 percent. 
D) If the standard deviation of the portfolio is zero,then the geometric average return must also be zero. 
E) The holding period return must be less than 8 percent. 
A) At least one of the 4 years produced an annual rate of return of 8 percent. 
B) If the standard deviation of the portfolio is greater than zero,then the geometric average portfolio return is less than 8 percent. 
C) The standard deviation of the portfolio must be lower than the standard deviation of a comparable portfolio that had an arithmetic average return of 9 percent. 
D) If the standard deviation of the portfolio is zero,then the geometric average return must also be zero. 
E) The holding period return must be less than 8 percent.

Question 12

A stock had returns of 11 percent,26 percent,8 percent,and −38 percent annually for the past 4 years.What is the mean and variance of these returns?

Accepted Answer

A) 1.75%; .057319 
B) 1.75%; .076425 
C) 3.50%; .057319 
D) 3.50%; .062833 
E) 3.50%; .076425 
A) 1.75%; .057319 
B) 1.75%; .076425 
C) 3.50%; .057319 
D) 3.50%; .062833 
E) 3.50%; .076425

Question 13

How is the Sharpe ratio defined as it applies to security returns?

Accepted Answer

A) Average return / Risk premium 
B) Standard deviation / Risk premium 
C) Average return / Standard deviation 
D) Risk premium / Average return 
E) Risk premium / Standard deviation 
A) Average return / Risk premium 
B) Standard deviation / Risk premium 
C) Average return / Standard deviation 
D) Risk premium / Average return 
E) Risk premium / Standard deviation

Question 14

Jen invested $1 fifty years ago.Today,her investment is worth $18,329.46.What is the geometric average return on this investment?

Accepted Answer

A) 30.27% 
B) 21.69% 
C) 32.46% 
D) 36.67% 
E) 25.09% 
A) 30.27% 
B) 21.69% 
C) 32.46% 
D) 36.67% 
E) 25.09%

Question 15

The standard deviation for a set of stock returns can be calculated as the

Accepted Answer

A) variance squared. 
B) positive square root of the variance. 
C) positive square root of the average return. 
D) average return divided by N minus one,where N is the number of returns. 
E) average squared difference between the actual return and the average return. 
A) variance squared. 
B) positive square root of the variance. 
C) positive square root of the average return. 
D) average return divided by N minus one,where N is the number of returns. 
E) average squared difference between the actual return and the average return.

Question 16

The return earned in a typical year over a multiyear 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 17

One year ago,Ted purchased 300 shares of stock at $18.09 a share.Today,he received a total of $267 in dividends and sold his shares for a total of $5,250.What was his total rate of return?

Accepted Answer

A) −3.57% 
B) −2.94% 
C) −4.43% 
D) 2.47% 
E) 1.66% 
A) −3.57% 
B) −2.94% 
C) −4.43% 
D) 2.47% 
E) 1.66%

Question 18

One year ago,Barkley's stock sold for $28 a share.During last year,Barkley's paid $1.23 per share in dividends and saw its stock price increase by 7 percent for the year.Today,the firm announced that it will pay $1.30 per share in dividends this year.What do you know with certainty about the performance of Barkley's stock for this year?

Accepted Answer

A) The total rate of return will be higher this year than it was last year. 
B) The dividend yield for this year will be higher than it was last year. 
C) The capital gains yield will be positive. 
D) The dividend yield for this year will be lower than it was last year. 
E) The total rate of return will be lower this year than it was last year. 
A) The total rate of return will be higher this year than it was last year. 
B) The dividend yield for this year will be higher than it was last year. 
C) The capital gains yield will be positive. 
D) The dividend yield for this year will be lower than it was last year. 
E) The total rate of return will be lower this year than it was last year.

Question 19

For the period 1926 to 2015,small-company stocks had an average return of 16.5 percent,U.S.Treasury bills returned 3.5 percent,and inflation averaged 3.0 percent.What was the risk premium on small-company stocks during this period?

Accepted Answer

A) 12.5 percent 
B) 20.0 percent 
C) 13.0 percent 
D) 13.5 percent 
E) 10.0 percent 
A) 12.5 percent 
B) 20.0 percent 
C) 13.0 percent 
D) 13.5 percent 
E) 10.0 percent

Question 20

Given a set of returns,the wider the distribution of those returns,the

Accepted Answer

A) higher the number of those returns. 
B) lower the average rate of return. 
C) lower the variance. 
D) higher the standard deviation. 
E) lower the volatility. 
A) higher the number of those returns. 
B) lower the average rate of return. 
C) lower the variance. 
D) higher the standard deviation. 
E) lower the volatility.

Which one of these statements correctly reflects historical history for the period 1926-2015?

The histograms of the returns on large-company and small-company stocks for the period 1926 to 2015 show that

A stock had annual returns of 9 percent,−16 percent,14 percent,and 2 percent over the past 4 years.What is the standard deviation of these returns?

You are comparing the returns of two portfolios for a 10-year period.Portfolio I has a lower dispersion of returns and a higher average rate of return than Portfolio II.Given this,what do you know with certainty?

Assume inflation averaged 1.2 percent during a period in which U.S.Treasury bills earned 1.3 percent.What was the rate of return on large-company stocks if the risk premium on those stocks was 6.8 percent for the period?

For the period 1926 to 2015,the mean return on large-company stocks is

Kurt's Toy Co.has total annual returns for the past 5 years of -8.2 percent,11.7 percent,-6.4 percent,18.7 percent,and 6.8 percent.What is the 5-year holding period return?

Assume a $1 investment in a stock 23 years ago is now worth $28.82.What is the geometric average return for the period?

If you examine the U.S.stock market risk premium by extending the 1926 to 2015 time period backwards in time to 1802 (given the available information),the risk premium

In 2008,the S&P 500 index

Suppose a portfolio had an arithmetic average return of 8 percent for a 4-year period.Which one of these statements must be true regarding this portfolio for the period?

A stock had returns of 11 percent,26 percent,8 percent,and −38 percent annually for the past 4 years.What is the mean and variance of these returns?

How is the Sharpe ratio defined as it applies to security returns?

Jen invested $1 fifty years ago.Today,her investment is worth $18,329.46.What is the geometric average return on this investment?

The standard deviation for a set of stock returns can be calculated as the

The return earned in a typical year over a multiyear period is called the ________ average return.

One year ago,Ted purchased 300 shares of stock at $18.09 a share.Today,he received a total of $267 in dividends and sold his shares for a total of $5,250.What was his total rate of return?

For the period 1926 to 2015,small-company stocks had an average return of 16.5 percent,U.S.Treasury bills returned 3.5 percent,and inflation averaged 3.0 percent.What was the risk premium on small-company stocks during this period?

Given a set of returns,the wider the distribution of those returns,the

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

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Exam 10: Risk and Return: Lessons From Market History

Which one of these statements correctly reflects historical history for the period 1926-2015?

The histograms of the returns on large-company and small-company stocks for the period 1926 to 2015 show that

A stock had annual returns of 9 percent,−16 percent,14 percent,and 2 percent over the past 4 years.What is the standard deviation of these returns?

You are comparing the returns of two portfolios for a 10-year period.Portfolio I has a lower dispersion of returns and a higher average rate of return than Portfolio II.Given this,what do you know with certainty?

Assume inflation averaged 1.2 percent during a period in which U.S.Treasury bills earned 1.3 percent.What was the rate of return on large-company stocks if the risk premium on those stocks was 6.8 percent for the period?

For the period 1926 to 2015,the mean return on large-company stocks is

Kurt's Toy Co.has total annual returns for the past 5 years of -8.2 percent,11.7 percent,-6.4 percent,18.7 percent,and 6.8 percent.What is the 5-year holding period return?

Assume a $1 investment in a stock 23 years ago is now worth $28.82.What is the geometric average return for the period?

If you examine the U.S.stock market risk premium by extending the 1926 to 2015 time period backwards in time to 1802 (given the available information),the risk premium

In 2008,the S&P 500 index

Suppose a portfolio had an arithmetic average return of 8 percent for a 4-year period.Which one of these statements must be true regarding this portfolio for the period?

A stock had returns of 11 percent,26 percent,8 percent,and −38 percent annually for the past 4 years.What is the mean and variance of these returns?

How is the Sharpe ratio defined as it applies to security returns?

Jen invested $1 fifty years ago.Today,her investment is worth $18,329.46.What is the geometric average return on this investment?

The standard deviation for a set of stock returns can be calculated as the

The return earned in a typical year over a multiyear period is called the ________ average return.

One year ago,Ted purchased 300 shares of stock at $18.09 a share.Today,he received a total of $267 in dividends and sold his shares for a total of $5,250.What was his total rate of return?

For the period 1926 to 2015,small-company stocks had an average return of 16.5 percent,U.S.Treasury bills returned 3.5 percent,and inflation averaged 3.0 percent.What was the risk premium on small-company stocks during this period?

Given a set of returns,the wider the distribution of those returns,the

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters