Question 1

If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's:

Accepted Answer

A)  equity ratio. 
B)  total book value. 
C)  market share. 
D)  market capitalization. 
E)  time value. 
A)  equity ratio. 
B)  total book value. 
C)  market share. 
D)  market capitalization. 
E)  time value.

Question 2

Jeanette invested $12,000 four years ago. Her arithmetic average return on this investment is 8.72 percent, and her geometric average return is 8.31 percent. What is Jeanette's portfolio worth today?

Accepted Answer

A)  $13,989 
B)  $14,203 
C)  $16,409 
D)  $16,514 
E)  $16,766 
A)  $13,989 
B)  $14,203 
C)  $16,409 
D)  $16,514 
E)  $16,766

Question 3

Over the past four years, the common stock of JL Steel Co. produced annual returns of 7.2, 4.8, 10.2, and 12.6 percent, respectively. 3.2, 3.4, 4.2, and 4.5 percent, respectively. What is the standard deviation of the risk premium on JL Steel Co. stock for this time period?

Accepted Answer

A)  2.23 percent 
B)  2.86 percent 
C)  3.29 percent 
D)  4.46 percent 
E)  4.61 percent 
A)  2.23 percent 
B)  2.86 percent 
C)  3.29 percent 
D)  4.46 percent 
E)  4.61 percent

Question 4

Jason owned a stock for three months and earned an annualized rate of return of 10.02 percent. What was the holding period return?

Accepted Answer

A)  2.37 percent 
B)  2.42 percent 
C)  2.46 percent 
D)  2.67 percent 
E)  2.72 percent 
A)  2.37 percent 
B)  2.42 percent 
C)  2.46 percent 
D)  2.67 percent 
E)  2.72 percent

Question 5

Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share. After six months, he resold the stock for $71.30 a share. What was his total dollar return?

Accepted Answer

A)  $1,008 
B)  $1,860 
C)  $2,712 
D)  $3,211 
E)  $3,400 
A)  $1,008 
B)  $1,860 
C)  $2,712 
D)  $3,211 
E)  $3,400

Question 6

Last year, ABC stock returned 11.4 percent, the risk-free rate was 3.2 percent, and the inflation rate was 2.8 percent. What was the risk premium on ABC stock?

Accepted Answer

A)  8.20 percent 
B)  8.43 percent 
C)  8.60 percent 
D)  8.88 percent 
E)  8.97 percent 
A)  8.20 percent 
B)  8.43 percent 
C)  8.60 percent 
D)  8.88 percent 
E)  8.97 percent

Question 7

Which one of the following had the greatest volatility of returns for the period 1926-2009?

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 8

Tom decides to begin investing some portion of his annual bonus, beginning this year with $5,000. In the first year he earns a 10% return and adds $3,500 to his investment. In the second his portfolio loses 5% but, sticking to his plan, he adds $500 to his portfolio. In this year his portfolio returns 2%. What is Tom's dollar-weighted average return on his investments?

Accepted Answer

A)  0.34 percent 
B)  1.02 percent 
C)  1.54 percent 
D)  2.23 percent 
E)  2.58 percent 
A)  0.34 percent 
B)  1.02 percent 
C)  1.54 percent 
D)  2.23 percent 
E)  2.58 percent

Question 9

A stock sold for $30 at the beginning of the year. The end of year stock price was $30.50. What is the amount of the annual dividend if the total return for the year was 7.7 percent?

Accepted Answer

A)  $1.11 
B)  $1.38 
C)  $1.60 
D)  $1.81 
E)  $2.31 
A)  $1.11 
B)  $1.38 
C)  $1.60 
D)  $1.81 
E)  $2.31

Question 10

When the total return on an investment is expressed on a per-year basis it is called the:

Accepted Answer

A)  capital gains yield. 
B)  dividend yield. 
C)  holding period return. 
D)  effective annual return. 
E)  initial return. 
A)  capital gains yield. 
B)  dividend yield. 
C)  holding period return. 
D)  effective annual return. 
E)  initial return.

Question 11

Which one of the following had the smallest standard deviation of returns for the period 1926-2009?

Accepted Answer

A)  large-company stocks 
B)  small-company stocks 
C)  long-term government bonds 
D)  intermediate-term government bonds 
E)  long-term corporate bonds 
A)  large-company stocks 
B)  small-company stocks 
C)  long-term government bonds 
D)  intermediate-term government bonds 
E)  long-term corporate bonds

Question 12

Today, you sold 800 shares of Sky High, 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 13

An asset has an average historical rate of return of 13.2 percent and a variance of .00972196. 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)  +3.34 to +23.06 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)  +3.34 to +23.06 percent 
E)  +13.1 to + 13.3 percent

Question 14

Which one of the following had the highest risk premium for the period 1926-2009?

Accepted Answer

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

Question 15

Uptown Industries common stock had returns of 9.2, 11.3, 10.6, and 5.4 percent, respectively, over the past four years. What is the standard deviation of these returns?

Accepted Answer

A)  2.07 percent 
B)  2.38 percent 
C)  2.41 percent 
D)  2.59 percent 
E)  2.63 percent 
A)  2.07 percent 
B)  2.38 percent 
C)  2.41 percent 
D)  2.59 percent 
E)  2.63 percent

Question 16

Celsius stock had year end prices of $42, $37, $44, and $46 over the past four years, respectively. What is the arithmetic average rate of return?

Accepted Answer

A)  3.17 percent 
B)  3.85 percent 
C)  4.28 percent 
D)  10.63 percent 
E)  11.79 percent 
A)  3.17 percent 
B)  3.85 percent 
C)  4.28 percent 
D)  10.63 percent 
E)  11.79 percent

Question 17

A stock produced annual returns of 5, -21, 11, 42, and 4 percent over the past five years, respectively. What is the geometric average return?

Accepted Answer

A)  5.78 percent 
B)  6.03 percent 
C)  6.34 percent 
D)  7.21 percent 
E)  8.20 percent 
A)  5.78 percent 
B)  6.03 percent 
C)  6.34 percent 
D)  7.21 percent 
E)  8.20 percent

Question 18

The risk-free rate is:

Accepted Answer

A)  another term for the dividend yield. 
B)  defined as the increase in the value of a share of stock over time. 
C)  the rate of return earned on an investment in a firm that you personally own. 
D)  defined as the total of the capital gains yield plus the dividend yield. 
E)  the rate of return on a riskless investment. 
A)  another term for the dividend yield. 
B)  defined as the increase in the value of a share of stock over time. 
C)  the rate of return earned on an investment in a firm that you personally own. 
D)  defined as the total of the capital gains yield plus the dividend yield. 
E)  the rate of return on a riskless investment.

Question 19

You have studied the historical returns and risks of various securities over the period of 1926-2009.
Describe the historical returns and risks associated with bonds as compared to stocks over that time period.

Accepted Answer

Over the period of 1926-2009, bonds have

Question 20

The average risk premium on large-company stocks for the period 1926-2009 was:

Accepted Answer

A)  6.7 percent. 
B)  7.9 percent. 
C)  8.5 percent. 
D)  12.3 percent. 
E)  13.6 percent. 
A)  6.7 percent. 
B)  7.9 percent. 
C)  8.5 percent. 
D)  12.3 percent. 
E)  13.6 percent.

If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's:

Jeanette invested $12,000 four years ago. Her arithmetic average return on this investment is 8.72 percent, and her geometric average return is 8.31 percent. What is Jeanette's portfolio worth today?

Over the past four years, the common stock of JL Steel Co. produced annual returns of 7.2, 4.8, 10.2, and 12.6 percent, respectively. 3.2, 3.4, 4.2, and 4.5 percent, respectively. What is the standard deviation of the risk premium on JL Steel Co. stock for this time period?

Jason owned a stock for three months and earned an annualized rate of return of 10.02 percent. What was the holding period return?

Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share. After six months, he resold the stock for $71.30 a share. What was his total dollar return?

Last year, ABC stock returned 11.4 percent, the risk-free rate was 3.2 percent, and the inflation rate was 2.8 percent. What was the risk premium on ABC stock?

Which one of the following had the greatest volatility of returns for the period 1926-2009?

A stock sold for $30 at the beginning of the year. The end of year stock price was $30.50. What is the amount of the annual dividend if the total return for the year was 7.7 percent?

When the total return on an investment is expressed on a per-year basis it is called the:

Which one of the following had the smallest standard deviation of returns for the period 1926-2009?

Today, you sold 800 shares of Sky High, 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?

An asset has an average historical rate of return of 13.2 percent and a variance of .00972196. What range of returns would you expect to see approximately two-thirds of the time?

Which one of the following had the highest risk premium for the period 1926-2009?

Uptown Industries common stock had returns of 9.2, 11.3, 10.6, and 5.4 percent, respectively, over the past four years. What is the standard deviation of these returns?

Celsius stock had year end prices of $42, $37, $44, and $46 over the past four years, respectively. What is the arithmetic average rate of return?

A stock produced annual returns of 5, -21, 11, 42, and 4 percent over the past five years, respectively. What is the geometric average return?

The risk-free rate is:

You have studied the historical returns and risks of various securities over the period of 1926-2009. Describe the historical returns and risks associated with bonds as compared to stocks over that time period.

The average risk premium on large-company stocks for the period 1926-2009 was:

The Investment Process

Overview of Security Types

Mutual Funds

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 Bonds

Government Bonds

Mortgage-Backed Securities

Filters

Exam 1: A Brief History of Risk and Return

If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's:

Jeanette invested $12,000 four years ago. Her arithmetic average return on this investment is 8.72 percent, and her geometric average return is 8.31 percent. What is Jeanette's portfolio worth today?

Over the past four years, the common stock of JL Steel Co. produced annual returns of 7.2, 4.8, 10.2, and 12.6 percent, respectively. 3.2, 3.4, 4.2, and 4.5 percent, respectively. What is the standard deviation of the risk premium on JL Steel Co. stock for this time period?

Jason owned a stock for three months and earned an annualized rate of return of 10.02 percent. What was the holding period return?

Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share. After six months, he resold the stock for $71.30 a share. What was his total dollar return?

Last year, ABC stock returned 11.4 percent, the risk-free rate was 3.2 percent, and the inflation rate was 2.8 percent. What was the risk premium on ABC stock?

Which one of the following had the greatest volatility of returns for the period 1926-2009?

A stock sold for $30 at the beginning of the year. The end of year stock price was $30.50. What is the amount of the annual dividend if the total return for the year was 7.7 percent?

When the total return on an investment is expressed on a per-year basis it is called the:

Which one of the following had the smallest standard deviation of returns for the period 1926-2009?

Today, you sold 800 shares of Sky High, 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?

An asset has an average historical rate of return of 13.2 percent and a variance of .00972196. What range of returns would you expect to see approximately two-thirds of the time?

Which one of the following had the highest risk premium for the period 1926-2009?

Uptown Industries common stock had returns of 9.2, 11.3, 10.6, and 5.4 percent, respectively, over the past four years. What is the standard deviation of these returns?

Celsius stock had year end prices of $42, $37, $44, and $46 over the past four years, respectively. What is the arithmetic average rate of return?

A stock produced annual returns of 5, -21, 11, 42, and 4 percent over the past five years, respectively. What is the geometric average return?

The risk-free rate is:

You have studied the historical returns and risks of various securities over the period of 1926-2009. Describe the historical returns and risks associated with bonds as compared to stocks over that time period.

The average risk premium on large-company stocks for the period 1926-2009 was:

The Investment Process

Overview of Security Types

Mutual Funds

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 Bonds

Government Bonds

Mortgage-Backed Securities

Filters