Question 1

The return earned in an average year over a multi-year 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 2

What are the lessons learned from capital market history?
 What evidence is there to suggest these lessons are correct?

Accepted Answer

First,there is a reward for bearing risk

Question 3

The average annual return on long-term corporate bonds for the period of 1926 to 2005 in the US was _____ %.

Accepted Answer

A) 3.8 
B) 5.8 
C) 6.2 
D) 7.9 
E) 8.4 
A) 3.8 
B) 5.8 
C) 6.2 
D) 7.9 
E) 8.4

Question 4

The risk premium is computed by ______ the average return for the investment.

Accepted Answer

A) subtracting the inflation rate from 
B) adding the inflation rate to 
C) subtracting the average return on the U.S.Treasury bill from 
D) adding the average return on the U.S.Treasury bill to 
E) subtracting the average return on long-term government bonds from 
A) subtracting the inflation rate from 
B) adding the inflation rate to 
C) subtracting the average return on the U.S.Treasury bill from 
D) adding the average return on the U.S.Treasury bill to 
E) subtracting the average return on long-term government bonds from

Question 5

You just sold 200 shares of Langley at a price of £38.75 a share.Last year you paid £41.50 a share to buy this equity.Over the course of the year,you received dividends totaling £1.64 per share.What is your capital gain on this investment?

Accepted Answer

A) -£550 
B) -£222 
C) -£3 
D) £550 
E) £878 
A) -£550 
B) -£222 
C) -£3 
D) £550 
E) £878

Question 6

The prices for IMB over the last 3 years are given below.Assuming no dividends were paid,what was the 3-year holding period return? Given the following information: Year 1 return = 10%,Year 2 return = 15%,Year 3 return = 12%.

Accepted Answer

A) 12.3% 
B) 13.9% 
C) 15.8% 
D) 41.7% 
E) 46.5% 
A) 12.3% 
B) 13.9% 
C) 15.8% 
D) 41.7% 
E) 46.5%

Question 7

Which of the following statements concerning the standard deviation are correct?
I.The greater the standard deviation,the lower the risk.
II.The standard deviation is a measure of volatility.
III.The higher the standard deviation,the less certain the rate of return in any one given year.
IV.The higher the standard deviation,the higher the expected return.

Accepted Answer

A) I and III only. 
B) II,III,and IV only. 
C) I,III,and IV only. 
D) I,II,and III only. 
E) I,II,III,and IV. 
A) I and III only. 
B) II,III,and IV only. 
C) I,III,and IV only. 
D) I,II,and III only. 
E) I,II,III,and IV.

Question 8

A year ago,you purchased 300 shares of IXC Technologies at a price of £9.03 per share.The shares pay an annual dividend of £.10 per share.Today,you sold all of your shares for £28.14 per share.What is your total monetary return on this investment?

Accepted Answer

A) £5,703 
B) £5,733 
C) £5,753 
D) £5,763 
E) £5,853 
A) £5,703 
B) £5,733 
C) £5,753 
D) £5,763 
E) £5,853

Question 9

Today,you sold 200 shares of SLG plc.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?

Accepted Answer

A) 4.80% 
B) 5.00% 
C) 6.67% 
D) 7.59% 
E) 11.67% 
A) 4.80% 
B) 5.00% 
C) 6.67% 
D) 7.59% 
E) 11.67%

Question 10

A share had returns of 6%,13%,-11%,and 17% over the past four years.What is the geometric average return for this time period?

Accepted Answer

A) 4.5% 
B) 5.7% 
C) 6.2% 
D) 7.3% 
E) 8.2% 
A) 4.5% 
B) 5.7% 
C) 6.2% 
D) 7.3% 
E) 8.2%

Question 11

An equity had returns of 8%,-2%,4%,and 16% over the past four years.What is the standard deviation of this equity for the past four years?

Accepted Answer

A) 6.3% 
B) 6.6% 
C) 7.1% 
D) 7.5% 
E) 7.9% 
A) 6.3% 
B) 6.6% 
C) 7.1% 
D) 7.5% 
E) 7.9%

Exam 9: Risk and Return: Lessons From Market History

The return earned in an average year over a multi-year period is called the _____ average return.

What are the lessons learned from capital market history? What evidence is there to suggest these lessons are correct?

The average annual return on long-term corporate bonds for the period of 1926 to 2005 in the US was _____ %.

The risk premium is computed by ______ the average return for the investment.

You just sold 200 shares of Langley at a price of £38.75 a share.Last year you paid £41.50 a share to buy this equity.Over the course of the year,you received dividends totaling £1.64 per share.What is your capital gain on this investment?

The prices for IMB over the last 3 years are given below.Assuming no dividends were paid,what was the 3-year holding period return? Given the following information: Year 1 return = 10%,Year 2 return = 15%,Year 3 return = 12%.

A year ago,you purchased 300 shares of IXC Technologies at a price of £9.03 per share.The shares pay an annual dividend of £.10 per share.Today,you sold all of your shares for £28.14 per share.What is your total monetary return on this investment?

Today,you sold 200 shares of SLG plc.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?

A share had returns of 6%,13%,-11%,and 17% over the past four years.What is the geometric average return for this time period?

An equity had returns of 8%,-2%,4%,and 16% over the past four years.What is the standard deviation of this equity for the past four years?

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis and Long-Term Planning

Discounted Cash Flow Valuation

How to Value Bonds and Shares

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

Factor Models and the Arbitrage Pricing Theory

Risk, cost of Capital, and Capital Budgeting

Corporate Financing Decisions and Efficient Capital Markets

Long-Term Financing: An Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividend and Other Payouts

Equity Financing

Debt Financing

Leasing and Off-Balance-Sheet Financing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Financial Risk Management With Derivatives

Short-Term Finance and Planning

Cash Management

Credit Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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