Exam 10: Investment Returns and Aggregate Measures of Stock Markets

Averaging down may result in the investor sending good money after bad.

Bond averages that are expressed in percentages are not comparable to the S&P 500.

Indices of Nasdaq stocks tend to be less volatile than the S&P 500 index.

Studies of investment returns suggest that investors can expect to earn at least 15 percent annually.

The Russell 1000 index

The Ibbotson Associates studies of rates of return suggest that 1)treasury bills match the rate of inflation 2)stocks of smaller companies generate higher returns than larger companies 3)corporate bonds generate higher returns than treasury bonds

The S&P 500 uses

The Dow Jones industrial and utility averages include a relatively small number of stocks.

Holding period returns for greater than a year do not give an accurate measure of the true rate of return.

The Standard & Poor's 500 stock index illustrates

If a stock rose from $10 to $30 over ten years,the annual rate of return

Over time,holding period returns tend to overstate the true rate of return.

Aggregate measures of stock prices include dividend income.

The Wilshire stock index is more broad based than the S&P 500 stock index.

To determine the realized return on an investment,the investor needs to know 1)income received 2)the cost of an investment 3)the sale price of the investment

Dollar-cost averaging is achieved by periodic,equal dollar investments.

You bought a stock for $28.29 that paid the following dividends After the third year,you sold the stock for $35.What was the annual rate of return?

Stock indices do not consider taxes on capital gains.

With dollar-cost averaging,the investor purchases more securities when their prices rise.

Movements in stock prices are often illustrated using relative (percentage)price changes.