Question 1

The total dollar return on a share of stock is defined as the:

Accepted Answer

A)  change in the price of the stock over a period of time. 
B)  dividend income divided by the beginning price per share. 
C)  capital gain or loss plus any dividend income. 
D)  change in the stock price divided by the original stock price. 
E)  annual dividend income received. 
A)  change in the price of the stock over a period of time. 
B)  dividend income divided by the beginning price per share. 
C)  capital gain or loss plus any dividend income. 
D)  change in the stock price divided by the original stock price. 
E)  annual dividend income received.

Question 2

For the period 1926-2016,the annual return on large-company stocks:

Accepted Answer

A)  was negative following every three-year period of positive returns. 
B)  was only negative for two or more consecutive years during the Great Depression. 
C)  remained negative for at least two consecutive years anytime that it was negative. 
D)  never exceeded a positive 30 percent nor lost more than 20 percent. 
E)  was unpredictable based on the prior year's performance. 
A)  was negative following every three-year period of positive returns. 
B)  was only negative for two or more consecutive years during the Great Depression. 
C)  remained negative for at least two consecutive years anytime that it was negative. 
D)  never exceeded a positive 30 percent nor lost more than 20 percent. 
E)  was unpredictable based on the prior year's performance.

Question 3

The wider the distribution of an investment's returns over time,the ________ the expected average rate of return and the ________ the expected volatility of those returns.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
E)  The distribution of returns does not affect the expected average rate of return. 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
E)  The distribution of returns does not affect the expected average rate of return.

Question 4

An asset has an average historical rate of return of 13 percent and a variance of 0.0106.What range of returns would you expect to see approximately two-thirds of the time?

Accepted Answer

A)  -2.28 to + 24.48 percent 
B)  -6.52 to + 32.92 percent 
C)  -9.58 to + 38.8 percent 
D)  +2.70 to + 23.30 percent 
E)  +13.1 to + 13.3 percent 
A)  -2.28 to + 24.48 percent 
B)  -6.52 to + 32.92 percent 
C)  -9.58 to + 38.8 percent 
D)  +2.70 to + 23.30 percent 
E)  +13.1 to + 13.3 percent

Question 5

An annualized return:

Accepted Answer

A)  is less than a holding period return when the holding period is less than one year. 
B)  is expressed as the summation of the capital gains yield and the dividend yield on an investment. 
C)  is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period. 
D)  is computed as (1 + holding period percentage return)m, where m is the number of holding periods in a year. 
E)  is computed as (1 + holding period percentage return)m, where m is the number of months in the holding period. 
A)  is less than a holding period return when the holding period is less than one year. 
B)  is expressed as the summation of the capital gains yield and the dividend yield on an investment. 
C)  is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period. 
D)  is computed as (1 + holding period percentage return)m, where m is the number of holding periods in a year. 
E)  is computed as (1 + holding period percentage return)m, where m is the number of months in the holding period.

Question 6

Jefferson Mills stock produced returns of 14.8,22.6,5.9,and 9.7 percent,respectively,over the past four years.During those same years,U.S.Treasury bills returned 3.8,4.6,4.8,and 4.0 percent,respectively,for the same time period.What is the variance of the risk premiums on Jefferson Mills stock for these four years?

Accepted Answer

A)  0.00298 
B)  0.00196 
C)  0.00396 
D)  0.00478 
E)  0.00528 
A)  0.00298 
B)  0.00196 
C)  0.00396 
D)  0.00478 
E)  0.00528

Question 7

The additional return earned for accepting risk is called the:

Accepted Answer

A)  inflated return. 
B)  capital gains yield. 
C)  real return. 
D)  riskless rate. 
E)  risk premium. 
A)  inflated return. 
B)  capital gains yield. 
C)  real return. 
D)  riskless rate. 
E)  risk premium.

Question 8

Today,you sold 800 shares of DeSoto Inc.,for $57.60 a share.You bought the shares one year ago at a price of $61.20 a share.Over the year,you received a total of $500 in dividends.What is your capital gains yield on this investment?

Accepted Answer

A)  -6.03 percent 
B)  -5.88 percent 
C)  -4.86 percent 
D)  6.25 percent 
E)  7.34 percent 
A)  -6.03 percent 
B)  -5.88 percent 
C)  -4.86 percent 
D)  6.25 percent 
E)  7.34 percent

Question 9

Scott purchased 200 shares of Frozen Foods stock for $48 a share.Four months later,he received a dividend of $0.22 a share and also sold the shares for $42 each.What was his annualized rate of return on this investment?

Accepted Answer

A)  -44.69 percent 
B)  -40.14 percent 
C)  -33.00 percent 
D)  -31.95 percent 
E)  -28.07 percent 
A)  -44.69 percent 
B)  -40.14 percent 
C)  -33.00 percent 
D)  -31.95 percent 
E)  -28.07 percent

Question 10

Shane purchased a stock this morning at a cost of $13 a share.He expects to receive an annual dividend of $0.27 a share next year.What will the price of the stock have to be one year from today if Shane is to earn a 8 percent rate of return on this investment?

Accepted Answer

A)  $12.38 
B)  $12.60 
C)  $12.88 
D)  $13.77 
E)  $14.28 
A)  $12.38 
B)  $12.60 
C)  $12.88 
D)  $13.77 
E)  $14.28

Question 11

Over the past five years,Teen Clothing stock produced returns of 18.7,5.8,7.9,10.8,and 11.6 percent,respectively.For the same five years,the risk-free rate 5.2,3.4,2.8,3.4,and 3.9 percent,respectively.What is the arithmetic average risk premium on Teen Clothing stock for this time period?

Accepted Answer

A)  6.89 percent 
B)  7.01 percent 
C)  7.22 percent 
D)  7.34 percent 
E)  7.57 percent 
A)  6.89 percent 
B)  7.01 percent 
C)  7.22 percent 
D)  7.34 percent 
E)  7.57 percent

Question 12

One year ago,you purchased 500 shares of stock at a cost of $10,500.The stock paid an annual dividend of $1.10 per share.Today,you sold those shares for $23.90 each.What is the capital gains yield on this investment?

Accepted Answer

A)  9.96 percent 
B)  10.52 percent 
C)  12.49 percent 
D)  13.81 percent 
E)  14.75 percent 
A)  9.96 percent 
B)  10.52 percent 
C)  12.49 percent 
D)  13.81 percent 
E)  14.75 percent

Question 13

You purchased a stock eight months ago for $36 a share.Today,you sold that stock for $41.50 a share.The stock pays no dividends.What was your annualized rate of return?

Accepted Answer

A)  23.32 percent 
B)  24.77 percent 
C)  25.70 percent 
D)  26.03 percent 
E)  27.67 percent 
A)  23.32 percent 
B)  24.77 percent 
C)  25.70 percent 
D)  26.03 percent 
E)  27.67 percent

Question 14

Jim began his investing program with a $4,000 initial investment.The table below recaps his returns each year as well as the amounts he added to his investment account.What is his dollar-weighted average return?

Accepted Answer

A)  1.6 percent 
B)  2.2 percent 
C)  2.6 percent 
D)  3.2 percent 
E)  3.6 percent 
A)  1.6 percent 
B)  2.2 percent 
C)  2.6 percent 
D)  3.2 percent 
E)  3.6 percent

Question 15

One year ago,you purchased 200 shares of Southern Foods common stock for $39.50 a share. Today,you sold your shares for $35.40 a share.During this past year,the stock paid $1.25 in dividends per share.What is your dividend yield on this investment?

Accepted Answer

A)  3.165 percent 
B)  3.375 percent 
C)  3.442 percent 
D)  3.533 percent 
E)  3.610 percent 
A)  3.165 percent 
B)  3.375 percent 
C)  3.442 percent 
D)  3.533 percent 
E)  3.610 percent

Question 16

The geometric return on an asset over the past 12 years has been 14.50 percent.The arithmetic return over the same period was 14.96 percent.What is the best estimate of the average return on this asset over the next 5 years?

Accepted Answer

A)  14.47 percent 
B)  14.67 percent 
C)  14.79 percent 
D)  14.88 percent 
E)  14.86 percent 
A)  14.47 percent 
B)  14.67 percent 
C)  14.79 percent 
D)  14.88 percent 
E)  14.86 percent

Question 17

The mean plus or minus one standard deviation defines the ________ percent probability range of a normal distribution.

Accepted Answer

A)  50 
B)  68 
C)  82 
D)  90 
E)  95 
A)  50 
B)  68 
C)  82 
D)  90 
E)  95

Question 18

Downtown Industries common stock had returns of 7.2,11.5,10.5,and 7.5 percent,respectively,over the past four years.What is the standard deviation of these returns?

Accepted Answer

A)  2.15 percent 
B)  2.38 percent 
C)  2.41 percent 
D)  2.59 percent 
E)  2.82 percent 
A)  2.15 percent 
B)  2.38 percent 
C)  2.41 percent 
D)  2.59 percent 
E)  2.82 percent

Question 19

Which one of the following had the greatest volatility of returns for the period 1926-2015?

Accepted Answer

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

Question 20

You invested $5,000 eight years ago.The arithmetic average return on your investment is 10.6 percent and the geometric average return is 10.23 percent.What is the value of your portfolio today?

Accepted Answer

A)  $9,092 
B)  $10,623 
C)  $10,899 
D)  $10,947 
E)  $11,195 
A)  $9,092 
B)  $10,623 
C)  $10,899 
D)  $10,947 
E)  $11,195

The total dollar return on a share of stock is defined as the:

For the period 1926-2016,the annual return on large-company stocks:

The wider the distribution of an investment's returns over time,the the expected average rate of return and the the expected volatility of those returns.

An asset has an average historical rate of return of 13 percent and a variance of 0.0106.What range of returns would you expect to see approximately two-thirds of the time?

An annualized return:

The additional return earned for accepting risk is called the:

Today,you sold 800 shares of DeSoto Inc.,for $57.60 a share.You bought the shares one year ago at a price of $61.20 a share.Over the year,you received a total of $500 in dividends.What is your capital gains yield on this investment?

Scott purchased 200 shares of Frozen Foods stock for $48 a share.Four months later,he received a dividend of $0.22 a share and also sold the shares for $42 each.What was his annualized rate of return on this investment?

Shane purchased a stock this morning at a cost of $13 a share.He expects to receive an annual dividend of $0.27 a share next year.What will the price of the stock have to be one year from today if Shane is to earn a 8 percent rate of return on this investment?

Over the past five years,Teen Clothing stock produced returns of 18.7,5.8,7.9,10.8,and 11.6 percent,respectively.For the same five years,the risk-free rate 5.2,3.4,2.8,3.4,and 3.9 percent,respectively.What is the arithmetic average risk premium on Teen Clothing stock for this time period?

One year ago,you purchased 500 shares of stock at a cost of $10,500.The stock paid an annual dividend of $1.10 per share.Today,you sold those shares for $23.90 each.What is the capital gains yield on this investment?

You purchased a stock eight months ago for $36 a share.Today,you sold that stock for $41.50 a share.The stock pays no dividends.What was your annualized rate of return?

Jim began his investing program with a $4,000 initial investment.The table below recaps his returns each year as well as the amounts he added to his investment account.What is his dollar-weighted average return?

One year ago,you purchased 200 shares of Southern Foods common stock for $39.50 a share. Today,you sold your shares for $35.40 a share.During this past year,the stock paid $1.25 in dividends per share.What is your dividend yield on this investment?

The geometric return on an asset over the past 12 years has been 14.50 percent.The arithmetic return over the same period was 14.96 percent.What is the best estimate of the average return on this asset over the next 5 years?

The mean plus or minus one standard deviation defines the ________ percent probability range of a normal distribution.

Downtown Industries common stock had returns of 7.2,11.5,10.5,and 7.5 percent,respectively,over the past four years.What is the standard deviation of these returns?

Which one of the following had the greatest volatility of returns for the period 1926-2015?

You invested $5,000 eight years ago.The arithmetic average return on your investment is 10.6 percent and the geometric average return is 10.23 percent.What is the value of your portfolio today?

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 1: A Brief History of Risk and Return

The total dollar return on a share of stock is defined as the:

For the period 1926-2016,the annual return on large-company stocks:

The wider the distribution of an investment's returns over time,the ________ the expected average rate of return and the ________ the expected volatility of those returns.

An asset has an average historical rate of return of 13 percent and a variance of 0.0106.What range of returns would you expect to see approximately two-thirds of the time?

An annualized return:

The additional return earned for accepting risk is called the:

Today,you sold 800 shares of DeSoto Inc.,for $57.60 a share.You bought the shares one year ago at a price of $61.20 a share.Over the year,you received a total of $500 in dividends.What is your capital gains yield on this investment?

Scott purchased 200 shares of Frozen Foods stock for $48 a share.Four months later,he received a dividend of $0.22 a share and also sold the shares for $42 each.What was his annualized rate of return on this investment?

Shane purchased a stock this morning at a cost of $13 a share.He expects to receive an annual dividend of $0.27 a share next year.What will the price of the stock have to be one year from today if Shane is to earn a 8 percent rate of return on this investment?

Over the past five years,Teen Clothing stock produced returns of 18.7,5.8,7.9,10.8,and 11.6 percent,respectively.For the same five years,the risk-free rate 5.2,3.4,2.8,3.4,and 3.9 percent,respectively.What is the arithmetic average risk premium on Teen Clothing stock for this time period?

One year ago,you purchased 500 shares of stock at a cost of $10,500.The stock paid an annual dividend of $1.10 per share.Today,you sold those shares for $23.90 each.What is the capital gains yield on this investment?

You purchased a stock eight months ago for $36 a share.Today,you sold that stock for $41.50 a share.The stock pays no dividends.What was your annualized rate of return?

Jim began his investing program with a $4,000 initial investment.The table below recaps his returns each year as well as the amounts he added to his investment account.What is his dollar-weighted average return?

One year ago,you purchased 200 shares of Southern Foods common stock for $39.50 a share. Today,you sold your shares for $35.40 a share.During this past year,the stock paid $1.25 in dividends per share.What is your dividend yield on this investment?

The geometric return on an asset over the past 12 years has been 14.50 percent.The arithmetic return over the same period was 14.96 percent.What is the best estimate of the average return on this asset over the next 5 years?

The mean plus or minus one standard deviation defines the ________ percent probability range of a normal distribution.

Downtown Industries common stock had returns of 7.2,11.5,10.5,and 7.5 percent,respectively,over the past four years.What is the standard deviation of these returns?

Which one of the following had the greatest volatility of returns for the period 1926-2015?

You invested $5,000 eight years ago.The arithmetic average return on your investment is 10.6 percent and the geometric average return is 10.23 percent.What is the value of your portfolio today?

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

The wider the distribution of an investment's returns over time,the the expected average rate of return and the the expected volatility of those returns.