Question 1

Winter's just declared that it is increasing its annual dividend from $.82 a share to $.85 a share.If the stock price should remain constant,then:

Accepted Answer

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

Question 2

A stock returned 13 percent,18 percent,-16 percent and -1 percent annually for the past four years.Based on this information,what is the 99.74 percent probability range for any one given year?

Accepted Answer

A) -8.4 to 11.7% 
B) -16.1 to 22.6% 
C) -24.5 to 34.3% 
D) -42.4 to 49.4% 
E) -54.8 to 61.3%

Question 3

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2012?

Accepted Answer

A) Long-term corporate bonds 
B) Long-term government bonds 
C) Small-company stocks 
D) Large-company stocks 
E) U.S.Treasury bills

Question 4

Assume the return on large-company stocks is currently 11.5 percent.The risk premium on large-company stocks is 8.6 percent and the inflation rate is 2.4 percent.What is the current risk-free rate of return?

Accepted Answer

A) 2.9% 
B) 7.4% 
C) 8.4% 
D) 10.6% 
E) 12.6%

Question 5

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 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

Question 6

The annual returns for KLO stock for the last three years are 11.2 percent,16.4 percent and 3.8 percent.Assuming no dividends were paid,what was the 3-year holding period return?

Accepted Answer

A) 10.47% 
B) 15.70% 
C) 31.40% 
D) 34.36% 
E) 36.52%

Question 7

Based on historical performance from 1900-2010 for a sampling of 17 countries,the annual stock market risk premium was approximately:

Accepted Answer

A) 3 percent. 
B) 5 percent 
C) 7 percent. 
D) 9 percent. 
E) 2 percent.

Question 8

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.

Question 9

One year ago,Stacey purchased 300 shares of IXC Tek stock at a price of $11.23 per share.The stock pays an annual dividend of $.23 per share.Today,Stacey sold all of her shares for $16.20 per share.What is her total dollar return on this investment?

Accepted Answer

A) $1,703 
B) $1,560 
C) $1,422 
D) $1,389 
E) $1,491

Question 10

For the period 1926-2012 small-company stocks had an average return of 16.5 percent.U.S.Treasury bills returned 3.6 percent and inflation averaged 3.1 percent.Small-company stocks had an approximate real rate of return of _____ percent and a risk premium of _____ percent.

Accepted Answer

A) 12.9;13.4 
B) 12.9;9.8 
C) 13.4;12.9 
D) 13.4;9.8 
E) 9.8;12.9

Question 11

A stock had annual returns of 8 percent,-2 percent,4 percent,and 20 percent over the past four years.What is the standard deviation of these returns?

Accepted Answer

A) 16.33% 
B) 16.09% 
C) 7.10% 
D) 9.29% 
E) 7.99%

Question 12

For our historical comparison purposes,how are large-company stocks defined?

Accepted Answer

A) Stocks of the lowest 20 percent of the firms listed on the NYSE based on market capitalization 
B) Stocks with average annual returns that exceed the average annual return of the U.S.Treasury bill 
C) Any firm that has been listed on the NYSE for 40 years or more 
D) Stocks of firms included in the S&P 500 composite index 
E) Stocks of firms that employ over 5,000 employees

Question 13

Which one of these stocks is most apt to have the highest (least negative)rate of return assuming that each stock has a negative total return for the period?

Accepted Answer

A) High-dividend,high standard deviation stock 
B) No dividend,high standard deviation stock 
C) High-dividend,low standard deviation stock 
D) Low-dividend,high standard deviation stock 
E) Low-dividend,low standard deviation stock

Question 14

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

Accepted Answer

A) subtracting the inflation rate from 
B) adding the inflation rate to 
C) subtracting the average return on U.S.Treasury bills from 
D) adding the average return on U.S.Treasury bills to 
E) subtracting the average return on long-term government bonds from

Question 15

A stock had returns of 19 percent,12 percent,-29 percent,35 percent,and 4 percent annually for the past five years.Based on these returns,what is the approximate probability that this stock will earn at least 30 percent in any one given year?

Accepted Answer

A) 8% 
B) 2% 
C) 16% 
D) 5% 
E) .5%

Question 16

Over the period of 1926 to 2012,small-company stocks had an average return of:

Accepted Answer

A) 18.2 percent. 
B) 15.9 percent. 
C) 12.8 percent. 
D) 16.5 percent. 
E) 17.4 percent.

Question 17

Six months ago,you purchased 2,400 shares of stock for $21.10 a share.Today,you sold the shares for $22.20 a share.What is your total dollar return on this investment if you received a dividend of $.40 a share?

Accepted Answer

A) $1,680 
B) -$1,420 
C) -$1,680 
D) $3,600 
E) $3,840

Question 18

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

Accepted Answer

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

Question 19

Which one of the following is a correct ranking of securities based on their volatility over the period of 1926 to 2012? Rank from highest volatility to lowest volatility.

Accepted Answer

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

Question 20

Which one of the following values cannot be negative?

Accepted Answer

A) Capital gain,Pt + 1 - Pt 
B) Total dollar return 
C) Holding period return 
D) Dividend yield 
E) Total return,Rt + 1

Exam 10: Risk and Return Lessons From Market History