Question 1

Based on the period of 1926 through 2008, _____ have tended to outperform other securities over the long-term.

Accepted Answer

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

Question 2

What securities have offered the highest average annual returns over the last several decades? Can we conclude that return and risk are related in real life?

Accepted Answer

The purpose of this question is to check

Question 3

On average, for the period 1926 through 2008:

Accepted Answer

A) the real rate of return on U.S.Treasury bills has been negative. 
B) small company stocks have underperformed large company stocks. 
C) long-term government bonds have produced higher returns than long-term corporate bonds. 
D) the risk premium on long-term corporate bonds has exceeded the risk premium on long-term government bonds. 
E) the risk premium on large company stocks has exceeded the risk premium on small company stocks. 
A) the real rate of return on U.S.Treasury bills has been negative. 
B) small company stocks have underperformed large company stocks. 
C) long-term government bonds have produced higher returns than long-term corporate bonds. 
D) the risk premium on long-term corporate bonds has exceeded the risk premium on long-term government bonds. 
E) the risk premium on large company stocks has exceeded the risk premium on small company stocks.

Question 4

What are the arithmetic and geometric average returns for a stock with annual returns of 21%, 8%, -32%, 41%, and 5%?

Accepted Answer

A) 5.6%; 8.6% 
B) 5.6%; 6.3% 
C) 8.6%; 5.6% 
D) 8.6%; 8.6% 
E) 8.6%; 6.3% 
A) 5.6%; 8.6% 
B) 5.6%; 6.3% 
C) 8.6%; 5.6% 
D) 8.6%; 8.6% 
E) 8.6%; 6.3%

Question 5

One year ago, you purchased a stock at a price of $32 a share.Today, you sold the stock and realized a total return of 25%.Your capital gain was $6 a share.What was your dividend yield on this stock?

Accepted Answer

A) 1.25% 
B) 3.75% 
C) 6.25% 
D) 18.75% 
E) 21.25% 
A) 1.25% 
B) 3.75% 
C) 6.25% 
D) 18.75% 
E) 21.25%

Question 6

Six months ago, you purchased 100 shares of stock in ABC Co.at a price of $43.89 a share.ABC stock pays a quarterly dividend of $.10 a share.Today, you sold all of your shares for $45.13 per share.What is the total amount of your capital gains on this investment?

Accepted Answer

A) $1.24 
B) $1.64 
C) $40.00 
D) $124.00 
E) $164.00 
A) $1.24 
B) $1.64 
C) $40.00 
D) $124.00 
E) $164.00

Question 7

The market portfolio of common stocks earned 14.7% in one year.Treasury bills earned 5.7%.What was the real risk premium on equities?

Accepted Answer

A) 5.0% 
B) 6.5% 
C) 9.0% 
D) 12.2% 
E) 18.7% 
A) 5.0% 
B) 6.5% 
C) 9.0% 
D) 12.2% 
E) 18.7%

Question 8

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 9

In predicting the expected future return of the market, one of the dangers is that:

Accepted Answer

A) the past is not indicative of the future. 
B) the past period measured is too short to get a reasonable estimate of the future. 
C) the equity premium does not include the premium on debt. 
D) A and B. 
E) A and C. 
A) the past is not indicative of the future. 
B) the past period measured is too short to get a reasonable estimate of the future. 
C) the equity premium does not include the premium on debt. 
D) A and B. 
E) A and C.

Question 10

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:

Accepted Answer

A) geometric average return. 
B) inflation premium. 
C) risk premium. 
D) time premium. 
E) arithmetic average return. 
A) geometric average return. 
B) inflation premium. 
C) risk premium. 
D) time premium. 
E) arithmetic average return.

Question 11

Excelsior share are currently selling for $25 each.You bought 200 shares one year ago at $24 and received dividend payments of $1.50 per share.What was your total rate of return?

Accepted Answer

A) 4.17% 
B) 6.25% 
C) 10.42% 
D) 104.67% 
E) 110.42% 
A) 4.17% 
B) 6.25% 
C) 10.42% 
D) 104.67% 
E) 110.42%

Question 12

Which one of the following is a correct ranking of securities based on their volatility over the period of 1926 to 2008? Rank from highest to lowest.

Accepted Answer

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

Question 13

The Zolo Co.just declared that it is increasing its annual dividend from $1.00 per share to $1.25 per share.If the stock price remains constant, then:

Accepted Answer

A) the capital gains yield will decrease. 
B) the capital gains yield will increase. 
C) the dividend yield will increase. 
D) the dividend yield will also remain constant. 
E) neither the capital gains yield nor the dividend yield will change. 
A) the capital gains yield will decrease. 
B) the capital gains yield will increase. 
C) the dividend yield will increase. 
D) the dividend yield will also remain constant. 
E) neither the capital gains yield nor the dividend yield will change.

Question 14

The average risk premium on U.S.Treasury bills over the period of 1926 to 2008 was _____%.

Accepted Answer

A) 0.0 
B) 1.6 
C) 2.2 
D) 3.1 
E) 3.8 
A) 0.0 
B) 1.6 
C) 2.2 
D) 3.1 
E) 3.8

Question 15

Over the period of 1926 to 2008, small company stocks had an average return of __%.

Accepted Answer

A) 8.8 
B) 10.2 
C) 12.4 
D) 14.6 
E) 16.4 
A) 8.8 
B) 10.2 
C) 12.4 
D) 14.6 
E) 16.4

Question 16

The total annual returns on large company common stocks averaged 12.3% from 1926 to 2008, small company stocks averaged 17.4%, long-term government bonds averaged 5.8%, while Treasury Bills averaged 3.8%.What was the average risk premium earned by long-term government bonds, and small company stocks respectively?

Accepted Answer

A) 1.8%; 13.3% 
B) 2.0%; 13.6% 
C) 4.4%; 11.9% 
D) 9.5%; 1.8% 
E) None of the above 
A) 1.8%; 13.3% 
B) 2.0%; 13.6% 
C) 4.4%; 11.9% 
D) 9.5%; 1.8% 
E) None of the above

Question 17

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

Accepted Answer

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

Question 18

A symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the _____ distribution.

Accepted Answer

A) gamma 
B) Poisson 
C) bi-modal 
D) normal 
E) uniform 
A) gamma 
B) Poisson 
C) bi-modal 
D) normal 
E) uniform

Question 19

A stock had returns of 8%, -2%, 4%, and 16% over the past four years.What is the standard deviation of this stock 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%

Question 20

Over the past five years, a stock produced returns of 14%, 22%, -16%, 2%, and 10%.What is the probability that an investor in this stock will NOT lose more than 8% nor earn more than 21% in any one given year?

Accepted Answer

A) 34% 
B) 68% 
C) 95% 
D) 99% 
E) 100% 
A) 34% 
B) 68% 
C) 95% 
D) 99% 
E) 100%

Exam 10: Risk and Return: Lessons From Market History

Based on the period of 1926 through 2008, _____ have tended to outperform other securities over the long-term.

What securities have offered the highest average annual returns over the last several decades? Can we conclude that return and risk are related in real life?

On average, for the period 1926 through 2008:

What are the arithmetic and geometric average returns for a stock with annual returns of 21%, 8%, -32%, 41%, and 5%?

One year ago, you purchased a stock at a price of $32 a share.Today, you sold the stock and realized a total return of 25%.Your capital gain was $6 a share.What was your dividend yield on this stock?

Six months ago, you purchased 100 shares of stock in ABC Co.at a price of $43.89 a share.ABC stock pays a quarterly dividend of $.10 a share.Today, you sold all of your shares for $45.13 per share.What is the total amount of your capital gains on this investment?

The market portfolio of common stocks earned 14.7% in one year.Treasury bills earned 5.7%.What was the real risk premium on equities?

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%.

In predicting the expected future return of the market, one of the dangers is that:

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:

Excelsior share are currently selling for $25 each.You bought 200 shares one year ago at $24 and received dividend payments of $1.50 per share.What was your total rate of return?

Which one of the following is a correct ranking of securities based on their volatility over the period of 1926 to 2008? Rank from highest to lowest.

The Zolo Co.just declared that it is increasing its annual dividend from $1.00 per share to $1.25 per share.If the stock price remains constant, then:

The average risk premium on U.S.Treasury bills over the period of 1926 to 2008 was _____%.

Over the period of 1926 to 2008, small company stocks had an average return of __%.

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

A symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the _____ distribution.

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

Over the past five years, a stock produced returns of 14%, 22%, -16%, 2%, and 10%.What is the probability that an investor in this stock will NOT lose more than 8% nor earn more than 21% in any one given year?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Return and Risk: the Capital Asset Pricing Model

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, Cost of Capital, and Capital Budgeting

Efficient Capital Markets and Behavioral Challenges

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

Dividends and Other Payouts

Issuing Securities to the Public

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

Filters