Question 1

The variance of returns is computed by dividing the sum of the:

Accepted Answer

A) squared deviations by the number of returns minus one. 
B) average returns by the number of returns minus one. 
C) average returns by the number of returns plus one. 
D) squared deviations by the average rate of return. 
E) squared deviations by the number of returns plus one. 
A) squared deviations by the number of returns minus one. 
B) average returns by the number of returns minus one. 
C) average returns by the number of returns plus one. 
D) squared deviations by the average rate of return. 
E) squared deviations by the number of returns plus one.

Question 2

Given a normal distribution,assume you want to earn a rate of return that plots more than three standard deviations above the mean.What is your probability of earning such a return in any one year?

Accepted Answer

A) Zero percent 
B) Less than .5 percent 
C) Between .5 and 1 percent 
D) Between 1 and 2 percent 
E) More than 2 percent 
A) Zero percent 
B) Less than .5 percent 
C) Between .5 and 1 percent 
D) Between 1 and 2 percent 
E) More than 2 percent

Question 3

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

Accepted Answer

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

Question 4

A stock has an expected rate of return of 14.2 percent and a standard deviation of 23.4 percent.Which one of the following best describes the probability that this stock will lose more than 1/3 of its value in any one year?

Accepted Answer

A) Less than .1% 
B) Approximately 2.25% 
C) Approximately 1% 
D) Less than .26% 
E) Approximately 4.60% 
A) Less than .1% 
B) Approximately 2.25% 
C) Approximately 1% 
D) Less than .26% 
E) Approximately 4.60%

Question 5

Alpha shares are currently selling for $28.09 a share.Alice bought 200 shares one year ago at a price of $25.20 a share and received total dividend payments of $1.25 a share.What was her total rate of return?

Accepted Answer

A) 11.47% 
B) 16.43% 
C) 14.74% 
D) 6.51% 
E) 5.84% 
A) 11.47% 
B) 16.43% 
C) 14.74% 
D) 6.51% 
E) 5.84%

Question 6

Eight months ago,Isaac purchased 50 shares of stock at a price of $65.90 a share.To date,he has received two quarterly dividends of $1.03 a share each.If he sells his shares at the current price of $52.80 a share,what will be his total percentage return?

Accepted Answer

A) -11.27% 
B) -9.38% 
C) -16.75% 
D) -20.91% 
E) -13.40% 
A) -11.27% 
B) -9.38% 
C) -16.75% 
D) -20.91% 
E) -13.40%

Question 7

This morning you purchased one share of stock for $14.The stock pays $.20 per share each quarter as a dividend.What must the stock price be one year from now if you want to earn a total return of 12 percent for the year?

Accepted Answer

A) $14.54 
B) $14.88 
C) $15.01 
D) $13.12 
E) $13.46 
A) $14.54 
B) $14.88 
C) $15.01 
D) $13.12 
E) $13.46

Question 8

Which one of these countries had the highest average stock market risk premium for the period 1900-2010?

Accepted Answer

A) United States 
B) United Kingdom 
C) Italy 
D) Sweden 
E) Denmark 
A) United States 
B) United Kingdom 
C) Italy 
D) Sweden 
E) Denmark

Question 9

Assume inflation averaged 3.2 percent during a period in which U.S.Treasury bills earned 4.3 percent.What was the average real rate of return on large-company stocks if the risk premium on those stocks was 7.4 percent for the period?

Accepted Answer

A) 8.5% 
B) 3.2% 
C) .1% 
D) 7.5% 
E) 14.9% 
A) 8.5% 
B) 3.2% 
C) .1% 
D) 7.5% 
E) 14.9%

Question 10

Which one of these statements correctly reflects historical history from 1926 through 2012?

Accepted Answer

A) Large-company stocks had the widest distribution of returns for the period. 
B) The rate of return in any given year is a good estimate of the rate of return for the following year. 
C) For small-company stocks,both the worst annual rate of return and the best annual rate of return occurred during the period 1929-1939. 
D) The annual rate of return on U.S.Treasury bills has never exceeded 8 percent. 
E) The standard deviation of returns for U.S.Treasury bills was zero percent for the period. 
A) Large-company stocks had the widest distribution of returns for the period. 
B) The rate of return in any given year is a good estimate of the rate of return for the following year. 
C) For small-company stocks,both the worst annual rate of return and the best annual rate of return occurred during the period 1929-1939. 
D) The annual rate of return on U.S.Treasury bills has never exceeded 8 percent. 
E) The standard deviation of returns for U.S.Treasury bills was zero percent for the period.

Question 11

Which one of these statements is correct?

Accepted Answer

A) Treasury bills outperformed inflation every year during the period 1925-2012. 
B) Small-company stocks outperformed large-company stocks every year during the period 1925-2012. 
C) On an annual basis,small-company stocks had more consistent rates of return than did large-company stocks for the period 1925-2012. 
D) The holding period return on large-company stocks was approximately half that of small-company stocks for the period 1925-2012. 
E) During the 1930's (Great Depression),long-term government bonds produced a relatively stable rate of return relative to large-company stocks. 
A) Treasury bills outperformed inflation every year during the period 1925-2012. 
B) Small-company stocks outperformed large-company stocks every year during the period 1925-2012. 
C) On an annual basis,small-company stocks had more consistent rates of return than did large-company stocks for the period 1925-2012. 
D) The holding period return on large-company stocks was approximately half that of small-company stocks for the period 1925-2012. 
E) During the 1930's (Great Depression),long-term government bonds produced a relatively stable rate of return relative to large-company stocks.

Question 12

Over the period 1925-2012,stocks outperformed bonds by a wide margin.What conclusion should you draw from this performance?

Accepted Answer

A) Stocks will have a higher rate of return than bonds in any given year. 
B) Investors should only purchase stocks. 
C) Any stock you select will outperform a bond over the long-term. 
D) On an annual basis,stock returns will exceed the rate of inflation but bond returns may or may not. 
E) Stocks are riskier than bonds. 
A) Stocks will have a higher rate of return than bonds in any given year. 
B) Investors should only purchase stocks. 
C) Any stock you select will outperform a bond over the long-term. 
D) On an annual basis,stock returns will exceed the rate of inflation but bond returns may or may not. 
E) Stocks are riskier than bonds.

Question 13

For the period 1926-2012 U.S.Treasury bills had an average return of 3.6 percent and inflation averaged 3.1 percent.U.S.Treasury bills had an approximate real rate of return of _____ percent and a risk premium of _____ percent.

Accepted Answer

A) 0;.5 
B) 0;-.5 
C) .5;0 
D) -.5;0 
E) .5;-.5 
A) 0;.5 
B) 0;-.5 
C) .5;0 
D) -.5;0 
E) .5;-.5

Question 14

One year ago,Barkley's stock sold for $20 a share.During last year,Barkley's paid $1.40 per share in dividends and saw its stock price increase by five percent for the year.Today,the firm announced that it will pay $1.43 per share in dividends this year.What do you know with certainty about the performance of Barkley's stock for this year?

Accepted Answer

A) The total rate of return will be higher this year than it was last year. 
B) The dividend yield for this year will be higher than it was last year. 
C) The capital gains yield will be positive. 
D) The dividend yield for this year will be lower than it was last year. 
E) The total rate of return will be lower this year than it was last year. 
A) The total rate of return will be higher this year than it was last year. 
B) The dividend yield for this year will be higher than it was last year. 
C) The capital gains yield will be positive. 
D) The dividend yield for this year will be lower than it was last year. 
E) The total rate of return will be lower this year than it was last year.

Question 15

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 16

One year ago,you purchased a stock at a price of $28.50 a share.Today,you sold the stock and realized a total return of 20.4 percent.Your capital gain was $5.20 a share.What was your dividend yield on this stock?

Accepted Answer

A) 1.25% 
B) 1.85% 
C) 2.15% 
D) 1.75% 
E) 1.35% 
A) 1.25% 
B) 1.85% 
C) 2.15% 
D) 1.75% 
E) 1.35%

Question 17

You are comparing the returns on two portfolios for a 10-year period.Portfolio I has a lower dispersion of returns and a higher average rate of return than Portfolio II.Given this,what do you know with certainty?

Accepted Answer

A) Portfolio I has a lower standard deviation than Portfolio II. 
B) Portfolio I consists of more dividend-paying stocks than Portfolio II. 
C) Portfolio II has less total risk than Portfolio I. 
D) Portfolio I will outperform Portfolio II over the next 10 years. 
E) Portfolio II consists of more individual stocks than Portfolio I. 
A) Portfolio I has a lower standard deviation than Portfolio II. 
B) Portfolio I consists of more dividend-paying stocks than Portfolio II. 
C) Portfolio II has less total risk than Portfolio I. 
D) Portfolio I will outperform Portfolio II over the next 10 years. 
E) Portfolio II consists of more individual stocks than Portfolio I.

Question 18

How does the payment of a dividend affect the total return on a stock?

Accepted Answer

Dividends improve the total return such

Question 19

When forecasting the future,the arithmetic average historical return is probably too ____ of an estimate for longer periods and the geometric average historical return is:

Accepted Answer

A) high;probably too low. 
B) high: probably accurate. 
C) low: probably too high. 
D) low: probably also too low. 
E) high;probably also too high. 
A) high;probably too low. 
B) high: probably accurate. 
C) low: probably too high. 
D) low: probably also too low. 
E) high;probably also too high.

Question 20

Winslow stock is currently selling for $48 a share.The stock has a dividend yield of 3.1 percent.How much dividend income will you receive per year if you purchase 600 shares of this stock?

Accepted Answer

A) $148.80 
B) $390.47 
C) $892.80 
D) $639.05 
E) $1,860.00 
A) $148.80 
B) $390.47 
C) $892.80 
D) $639.05 
E) $1,860.00

The variance of returns is computed by dividing the sum of the:

Given a normal distribution,assume you want to earn a rate of return that plots more than three standard deviations above the mean.What is your probability of earning such a return in any one year?

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

A stock has an expected rate of return of 14.2 percent and a standard deviation of 23.4 percent.Which one of the following best describes the probability that this stock will lose more than 1/3 of its value in any one year?

Alpha shares are currently selling for $28.09 a share.Alice bought 200 shares one year ago at a price of $25.20 a share and received total dividend payments of $1.25 a share.What was her total rate of return?

Eight months ago,Isaac purchased 50 shares of stock at a price of $65.90 a share.To date,he has received two quarterly dividends of $1.03 a share each.If he sells his shares at the current price of $52.80 a share,what will be his total percentage return?

This morning you purchased one share of stock for $14.The stock pays $.20 per share each quarter as a dividend.What must the stock price be one year from now if you want to earn a total return of 12 percent for the year?

Which one of these countries had the highest average stock market risk premium for the period 1900-2010?

Assume inflation averaged 3.2 percent during a period in which U.S.Treasury bills earned 4.3 percent.What was the average real rate of return on large-company stocks if the risk premium on those stocks was 7.4 percent for the period?

Which one of these statements correctly reflects historical history from 1926 through 2012?

Which one of these statements is correct?

Over the period 1925-2012,stocks outperformed bonds by a wide margin.What conclusion should you draw from this performance?

For the period 1926-2012 U.S.Treasury bills had an average return of 3.6 percent and inflation averaged 3.1 percent.U.S.Treasury bills had an approximate real rate of return of _ percent and a risk premium of _ percent.

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

One year ago,you purchased a stock at a price of $28.50 a share.Today,you sold the stock and realized a total return of 20.4 percent.Your capital gain was $5.20 a share.What was your dividend yield on this stock?

You are comparing the returns on two portfolios for a 10-year period.Portfolio I has a lower dispersion of returns and a higher average rate of return than Portfolio II.Given this,what do you know with certainty?

How does the payment of a dividend affect the total return on a stock?

When forecasting the future,the arithmetic average historical return is probably too ____ of an estimate for longer periods and the geometric average historical return is:

Winslow stock is currently selling for $48 a share.The stock has a dividend yield of 3.1 percent.How much dividend income will you receive per year if you purchase 600 shares of this stock?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

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

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters

Exam 10: Risk and Return Lessons From Market History

The variance of returns is computed by dividing the sum of the:

Given a normal distribution,assume you want to earn a rate of return that plots more than three standard deviations above the mean.What is your probability of earning such a return in any one year?

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

A stock has an expected rate of return of 14.2 percent and a standard deviation of 23.4 percent.Which one of the following best describes the probability that this stock will lose more than 1/3 of its value in any one year?

Alpha shares are currently selling for $28.09 a share.Alice bought 200 shares one year ago at a price of $25.20 a share and received total dividend payments of $1.25 a share.What was her total rate of return?

Eight months ago,Isaac purchased 50 shares of stock at a price of $65.90 a share.To date,he has received two quarterly dividends of $1.03 a share each.If he sells his shares at the current price of $52.80 a share,what will be his total percentage return?

This morning you purchased one share of stock for $14.The stock pays $.20 per share each quarter as a dividend.What must the stock price be one year from now if you want to earn a total return of 12 percent for the year?

Which one of these countries had the highest average stock market risk premium for the period 1900-2010?

Assume inflation averaged 3.2 percent during a period in which U.S.Treasury bills earned 4.3 percent.What was the average real rate of return on large-company stocks if the risk premium on those stocks was 7.4 percent for the period?

Which one of these statements correctly reflects historical history from 1926 through 2012?

Which one of these statements is correct?

Over the period 1925-2012,stocks outperformed bonds by a wide margin.What conclusion should you draw from this performance?

For the period 1926-2012 U.S.Treasury bills had an average return of 3.6 percent and inflation averaged 3.1 percent.U.S.Treasury bills had an approximate real rate of return of _____ percent and a risk premium of _____ percent.

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

One year ago,you purchased a stock at a price of $28.50 a share.Today,you sold the stock and realized a total return of 20.4 percent.Your capital gain was $5.20 a share.What was your dividend yield on this stock?

You are comparing the returns on two portfolios for a 10-year period.Portfolio I has a lower dispersion of returns and a higher average rate of return than Portfolio II.Given this,what do you know with certainty?

How does the payment of a dividend affect the total return on a stock?

When forecasting the future,the arithmetic average historical return is probably too ____ of an estimate for longer periods and the geometric average historical return is:

Winslow stock is currently selling for $48 a share.The stock has a dividend yield of 3.1 percent.How much dividend income will you receive per year if you purchase 600 shares of this stock?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

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

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters

For the period 1926-2012 U.S.Treasury bills had an average return of 3.6 percent and inflation averaged 3.1 percent.U.S.Treasury bills had an approximate real rate of return of _ percent and a risk premium of _ percent.