Question 1

What are the arithmetic and geometric average returns for a stock with annual returns of 4%, 9%, -6%, and 18%?

Accepted Answer

A) 5.89%; 6.25% 
B) 6.25%; 5.89% 
C) 6.25%; 8.33% 
D) 8.3%; 5.89% 
E) 8.3%; 6.25% 
A) 5.89%; 6.25% 
B) 6.25%; 5.89% 
C) 6.25%; 8.33% 
D) 8.3%; 5.89% 
E) 8.3%; 6.25%

Question 2

If the expected return on the market is 16%, then using the historical risk premium on large stocks of 8.6%, the current risk-free rate is:

Accepted Answer

A) 4.6% 
B) 7.4% 
C) 8.4% 
D) 10.6% 
E) 12.6% 
A) 4.6% 
B) 7.4% 
C) 8.4% 
D) 10.6% 
E) 12.6%

Question 3

The average squared difference between the actual return and the average return is called the:

Accepted Answer

A) volatility return. 
B) variance. 
C) standard deviation. 
D) risk premium. 
E) excess return. 
A) volatility return. 
B) variance. 
C) standard deviation. 
D) risk premium. 
E) excess return.

Question 4

Over the period of 1926 through 2008, the annual rate of return on _____ has been more volatile than the annual rate of return on _____.

Accepted Answer

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

Question 5

The average annual return on long-term corporate bonds for the period of 1926 to 2008 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 6

Which of the following statements are correct concerning the variance of the annual returns on an investment?
I.The larger the variance, the more the actual returns tend to differ from the average return.
II.The larger the variance, the larger the standard deviation.
III.The larger the variance, the greater the risk of the investment.
IV.The larger the variance, 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 7

One year ago, you purchased a stock at a price of $32.50.The stock pays quarterly dividends of $.40 per share.Today, the stock is worth $34.60 per share.What is the total amount of your dividend income to date from this investment?

Accepted Answer

A) $0.40 
B) $1.60 
C) $2.10 
D) $2.50 
E) $3.70 
A) $0.40 
B) $1.60 
C) $2.10 
D) $2.50 
E) $3.70

Question 8

How much of total world stock market capitalization is from the United States in 2008?

Accepted Answer

A) approximately 10% 
B) approximately 25% 
C) approximately 45% 
D) approximately 57% 
E) approximately 72% 
A) approximately 10% 
B) approximately 25% 
C) approximately 45% 
D) approximately 57% 
E) approximately 72%

Question 9

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2008?

Accepted Answer

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

Question 10

The capital gains yield plus the dividend yield on a security is called the:

Accepted Answer

A) variance of returns. 
B) geometric return. 
C) average period return. 
D) current yield. 
E) total return. 
A) variance of returns. 
B) geometric return. 
C) average period return. 
D) current yield. 
E) total return.

Question 11

You purchased 200 shares of stock at a price of $36.72 per share.Over the last year, you have received total dividend income of $322.What is the dividend yield?

Accepted Answer

A) 3.2% 
B) 4.4% 
C) 6.8% 
D) 9.2% 
E) 11.4% 
A) 3.2% 
B) 4.4% 
C) 6.8% 
D) 9.2% 
E) 11.4%

Question 12

A portfolio of large company stocks would contain which one of the following types of securities?

Accepted Answer

A) stocks of the firms which represent the smallest 20% of the companies listed on the NYSE 
B) U.S.Treasury bills 
C) long-term corporate bonds 
D) stocks of firms included in the S&P 500 index 
E) long-term government bonds 
A) stocks of the firms which represent the smallest 20% of the companies listed on the NYSE 
B) U.S.Treasury bills 
C) long-term corporate bonds 
D) stocks of firms included in the S&P 500 index 
E) long-term government bonds

Question 13

Little John Industries sold for $1.90 on January 1 and ended the year at a price of $2.50.In addition, the stock paid dividends of $0.20 per share.Calculate Little John's dividend yield, capital gains yield, and total rate of return for the year.

Accepted Answer

Dividend yield = $0.20/$1.90 =

Question 14

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 15

Today, you sold 200 shares of SLG, Inc.stock.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 16

You earned a total return of -5% on NoDotCom this year, earned -40% last year, and earned 30% two years ago.Calculate both the three-year holding period return and the average three year return.

Accepted Answer

3-year holding period return =

Exam 10: Risk and Return: Lessons From Market History

What are the arithmetic and geometric average returns for a stock with annual returns of 4%, 9%, -6%, and 18%?

If the expected return on the market is 16%, then using the historical risk premium on large stocks of 8.6%, the current risk-free rate is:

The average squared difference between the actual return and the average return is called the:

Over the period of 1926 through 2008, the annual rate of return on _____ has been more volatile than the annual rate of return on _____.

The average annual return on long-term corporate bonds for the period of 1926 to 2008 was _____%.

One year ago, you purchased a stock at a price of $32.50.The stock pays quarterly dividends of $.40 per share.Today, the stock is worth $34.60 per share.What is the total amount of your dividend income to date from this investment?

How much of total world stock market capitalization is from the United States in 2008?

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2008?

The capital gains yield plus the dividend yield on a security is called the:

You purchased 200 shares of stock at a price of $36.72 per share.Over the last year, you have received total dividend income of $322.What is the dividend yield?

A portfolio of large company stocks would contain which one of the following types of securities?

Little John Industries sold for $1.90 on January 1 and ended the year at a price of $2.50.In addition, the stock paid dividends of $0.20 per share.Calculate Little John's dividend yield, capital gains yield, and total rate of return for the year.

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

Today, you sold 200 shares of SLG, Inc.stock.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?

You earned a total return of -5% on NoDotCom this year, earned -40% last year, and earned 30% two years ago.Calculate both the three-year holding period return and the average three year return.

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

Over the period of 1926 through 2008, the annual rate of return on _ has been more volatile than the annual rate of return on _.