Question 1

Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _____ the expected return for the long-term and estimates using the historical geometric average will probably tend to _____ the expected return for the short-term.

Accepted Answer

A)  overestimate; overestimate
B)  overestimate; underestimate
C)  underestimate; overestimate
D)  underestimate; underestimate
E)  accurately; accuratelyF) C) and D)
G) A) and B)

Question 2

A stock has returns of 18 percent, 15 percent, -21 percent, and 6 percent for the past four years.Based on this information, what is the 95 percent probability range of returns for any one given year?

Accepted Answer

A)  -13.56 to 20.56 percent
B)  -24.60 to 31.80 percent
C)  -31.00 to 40.00 percent
D)  -47.68 to 54.68 percent
E)  -71.73 to 71.73 percentF) A) and D)
G) A) and E)

Question 3

A stock has annual returns of 6 percent, 14 percent, -3 percent, and 2 percent for the past four years.The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.

Accepted Answer

A)  4.57; 4.75
B)  4.75; 4.57
C)  6.33; 6.19
D)  6.19; 6.33
E)  6.33; 6.33F) B) and D)
G) C) and E)

Question 4

Which one of the following was the least volatile over the period of 1926-2010?

Accepted Answer

A)  large-company stocks
B)  inflation
C)  long-term corporate bonds
D)  U.S.Treasury bills
E)  intermediate-term government bondsF) A) and E)
G) None of the above

Question 5

Which one of the following statements related to capital gains is correct?

Accepted Answer

A)  The capital gains yield includes only realized capital gains.
B)  An increase in an unrealized capital gain will increase the capital gains yield.
C)  The capital gains yield must be either positive or equal to zero.
D)  The capital gains yield is expressed as a percentage of the sales price.
E)  The capital gains yield represents the total return earned by an investor.F) B) and D)
G) A) and C)

Question 6

One year ago, you purchased a stock at a price of $33.49.The stock pays quarterly dividends of $0.20 per share.Today, the stock is selling for $28.20 per share.What is your capital gain on this investment?

Accepted Answer

A)  -$5.49
B)  -$5.29
C)  -$4.76
D)  -$4.16
E)  -$5.09F) A) and D)
G) A) and B)

Question 7

The historical record for the period 1926-2010 supports which one of the following statements?

Accepted Answer

A)  A higher-risk security will provide a higher rate of return next year than will a lower-risk security.
B)  If you need a stated amount of money next year, your best investment option today for those funds would be long-term government bonds.
C)  Increased long-run potential returns are obtained by lowering risks.
D)  It is possible for small-company stocks to more than double in value in any one given year.
E)  Inflation was positive each year throughout the period of 1926-2010.F) None of the above
G) D) and E)

Question 8

Stacy purchased a stock last year and sold it today for $3 a share more than her purchase price.She received a total of $0.75 in dividends.Which one of the following statements is correct in relation to this investment?

Accepted Answer

A)  The dividend yield is expressed as a percentage of the selling price.
B)  The capital gain would have been less had Stacy not received the dividends.
C)  The total dollar return per share is $3.
D)  The capital gains yield is positive.
E)  The dividend yield is greater than the capital gains yield.F) A) and E)
G) B) and C)

Question 9

Standard deviation is a measure of which one of the following?

Accepted Answer

A)  average rate of return
B)  volatility
C)  probability
D)  risk premium
E)  real returnsF) B) and C)
G) A) and B)

Question 10

Assume that the returns from an asset are normally distributed.The average annual return for the asset is 18.1 percent and the standard deviation of the returns is 32.5 percent.What is the approximate probability that your money will triple in value in a single year?

Accepted Answer

A)  less than 0.5 percent
B)  less than 1 percent but greater than 0.5 percent
C)  less then 2.5 percent but greater than 1 percent
D)  less than 5 percent but greater than 2.5 percent
E)  less than 10 percent but greater than 5 percentF) D) and E)
G) C) and D)

Question 11

The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2010.

Accepted Answer

A)  3
B)  5
C)  7
D)  9
E)  11F) A) and E)
G) A) and D)

Question 12

Efficient financial markets fluctuate continuously because:

Accepted Answer

A)  the markets are continually reacting to old information as that information is absorbed.
B)  the markets are continually reacting to new information.
C)  arbitrage trading is limited.
D)  current trading systems require human intervention.
E)  investments produce varying levels of net present values.F) A) and B)
G) B) and C)

Question 13

Which one of the following statements is correct based on the historical record for the period 1926-2010?

Accepted Answer

A)  The standard deviation of returns for small-company stocks was double that of large-company stocks.
B)  U.S.Treasury bills had a zero standard deviation of returns because they are considered to be risk-free.
C)  Long-term government bonds had a lower return but a higher standard deviation on average than did long-term corporate bonds.
D)  Inflation was less volatile than the returns on U.S.Treasury bills.
E)  Long-term government bonds underperformed intermediate-term government bonds.F) C) and E)
G) A) and B)

Question 14

The common stock of Air United, Inc., had annual returns of 15.6 percent, 2.4 percent, -11.8 percent, and 32.9 percent over the last four years, respectively.What is the standard deviation of these returns?

Accepted Answer

A)  13.29 percent
B)  14.14 percent
C)  16.50 percent
D)  17.78 percent
E)  19.05 percentF) D) and E)
G) C) and D)

Question 15

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2010?

Accepted Answer

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

Question 16

One year ago, you purchased 500 shares of Best Wings, Inc.stock at a price of $9.75 a share.The company pays an annual dividend of $0.10 per share.Today, you sold all of your shares for $15.60 a share.What is your total percentage return on this investment?

Accepted Answer

A)  38.46 percent
B)  39.10 percent
C)  39.72 percent
D)  62.50 percent
E)  61.03 percentF) B) and E)
G) A) and E)

Question 17

A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent.Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Accepted Answer

A)  0.1 percent
B)  0.5 percent
C)  1.0 percent
D)  2.5 percent
E)  5.0 percentF) B) and C)
G) A) and E)

Question 18

Which of the following statements related to market efficiency tend to be supported by current evidence?
I.Markets tend to respond quickly to new information.
II.It is difficult for investors to earn abnormal returns.
III.Short-run prices are difficult to predict accurately based on public information.
IV.Markets are most likely weak form efficient.

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I and IV only
D)  I, III, and IV only
E)  I, II, and III onlyF) A) and B)
G) A) and C)

Question 19

Today, you sold 200 shares of Indian River Produce stock.Your total return on these shares is 6.2 percent.You purchased the shares one year ago at a price of $31.10 a share.You have received a total of $100 in dividends over the course of the year.What is your capital gains yield on this investment?

Accepted Answer

A)  3.68 percent
B)  4.59 percent
C)  5.67 percent
D)  7.26 percent
E)  7.41 percentF) A) and B)
G) B) and D)

Question 20

According to theory, studying historical stock price movements to identify mispriced stocks:

Accepted Answer

A)  is effective as long as the market is only semistrong form efficient.
B)  is effective provided the market is only weak form efficient.
C)  is ineffective even when the market is only weak form efficient.
D)  becomes ineffective as soon as the market gains semistrong form efficiency.
E)  is ineffective only in strong form efficient markets.F) B) and D)
G) A) and D)

Exam 12: Return, Risk and the Security Market

Correct Answer
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According to theory, studying historical stock price movements to identify mispriced stocks:

Correct Answer
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One year ago, you purchased 500 shares of Best Wings, Inc.stock at a price of $9.75 a share.The company pays an annual dividend of $0.10 per share.Today, you sold all of your shares for $15.60 a share.What is your total percentage return on this investment?

Correct Answer
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Which one of the following categories of securities had the lowest average risk premium for the period 1926-2010?

Correct Answer
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Which one of the following statements is correct based on the historical record for the period 1926-2010?

Correct Answer
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A stock has annual returns of 6 percent, 14 percent, -3 percent, and 2 percent for the past four years.The arithmetic average of these returns is _ percent while the geometric average return for the period is _ percent.

Correct Answer
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One year ago, you purchased a stock at a price of $33.49.The stock pays quarterly dividends of $0.20 per share.Today, the stock is selling for $28.20 per share.What is your capital gain on this investment?

Correct Answer
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Efficient financial markets fluctuate continuously because:

Correct Answer
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Which one of the following was the least volatile over the period of 1926-2010?

Correct Answer
verified

The historical record for the period 1926-2010 supports which one of the following statements?

Correct Answer
verified

The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2010.

Correct Answer
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Standard deviation is a measure of which one of the following?

Correct Answer
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Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _ the expected return for the long-term and estimates using the historical geometric average will probably tend to _ the expected return for the short-term.

Correct Answer
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A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent.Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Correct Answer
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Today, you sold 200 shares of Indian River Produce stock.Your total return on these shares is 6.2 percent.You purchased the shares one year ago at a price of $31.10 a share.You have received a total of $100 in dividends over the course of the year.What is your capital gains yield on this investment?

Correct Answer
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Which one of the following statements related to capital gains is correct?

Correct Answer
verified

Assume that the returns from an asset are normally distributed.The average annual return for the asset is 18.1 percent and the standard deviation of the returns is 32.5 percent.What is the approximate probability that your money will triple in value in a single year?

Correct Answer
verified

A stock has returns of 18 percent, 15 percent, -21 percent, and 6 percent for the past four years.Based on this information, what is the 95 percent probability range of returns for any one given year?

Correct Answer
verified

Stacy purchased a stock last year and sold it today for $3 a share more than her purchase price.She received a total of $0.75 in dividends.Which one of the following statements is correct in relation to this investment?

Correct Answer
verified

The common stock of Air United, Inc., had annual returns of 15.6 percent, 2.4 percent, -11.8 percent, and 32.9 percent over the last four years, respectively.What is the standard deviation of these returns?

Correct Answer
verified

Exam 12: Return, Risk and the Security Market

Correct AnswerverifiedShow Answer

According to theory, studying historical stock price movements to identify mispriced stocks:

Correct AnswerverifiedShow Answer

One year ago, you purchased 500 shares of Best Wings, Inc.stock at a price of $9.75 a share.The company pays an annual dividend of $0.10 per share.Today, you sold all of your shares for $15.60 a share.What is your total percentage return on this investment?

Correct AnswerverifiedShow Answer

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2010?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct based on the historical record for the period 1926-2010?

Correct AnswerverifiedShow Answer

A stock has annual returns of 6 percent, 14 percent, -3 percent, and 2 percent for the past four years.The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.

Correct AnswerverifiedShow Answer

One year ago, you purchased a stock at a price of $33.49.The stock pays quarterly dividends of $0.20 per share.Today, the stock is selling for $28.20 per share.What is your capital gain on this investment?

Correct AnswerverifiedShow Answer

Efficient financial markets fluctuate continuously because:

Correct AnswerverifiedShow Answer

Which one of the following was the least volatile over the period of 1926-2010?

Correct AnswerverifiedShow Answer

The historical record for the period 1926-2010 supports which one of the following statements?

Correct AnswerverifiedShow Answer

The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2010.

Correct AnswerverifiedShow Answer

Standard deviation is a measure of which one of the following?

Correct AnswerverifiedShow Answer

Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _____ the expected return for the long-term and estimates using the historical geometric average will probably tend to _____ the expected return for the short-term.

Correct AnswerverifiedShow Answer

A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent.Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements related to capital gains is correct?

Correct AnswerverifiedShow Answer

Assume that the returns from an asset are normally distributed.The average annual return for the asset is 18.1 percent and the standard deviation of the returns is 32.5 percent.What is the approximate probability that your money will triple in value in a single year?

Correct AnswerverifiedShow Answer

A stock has returns of 18 percent, 15 percent, -21 percent, and 6 percent for the past four years.Based on this information, what is the 95 percent probability range of returns for any one given year?

Correct AnswerverifiedShow Answer

Stacy purchased a stock last year and sold it today for $3 a share more than her purchase price.She received a total of $0.75 in dividends.Which one of the following statements is correct in relation to this investment?

Correct AnswerverifiedShow Answer

The common stock of Air United, Inc., had annual returns of 15.6 percent, 2.4 percent, -11.8 percent, and 32.9 percent over the last four years, respectively.What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

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A stock has annual returns of 6 percent, 14 percent, -3 percent, and 2 percent for the past four years.The arithmetic average of these returns is _ percent while the geometric average return for the period is _ percent.

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Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _ the expected return for the long-term and estimates using the historical geometric average will probably tend to _ the expected return for the short-term.

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