Question 1

Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns?

Accepted Answer

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

Question 2

Suppose you bought a$1,000 face value bond with a 5 percent coupon one year ago for $1,020.The bond sells today for $986.If the inflation rate last year was 2.3 percent, what was your total real rate of return on this investment?

Accepted Answer

A)  .02 percent
B)  -.71 percent
C)  .31 percent
D)  .89 percent
E)  -.48 percentF) C) and D)
G) A) and C)

Question 3

The common stock of Mountain Farms has yielded 14.2 percent, 11.7 percent, 3.4 percent, -2.8 percent, and 15.8 percent over the past five years, respectively.What is the geometric average return?

Accepted Answer

A)  7.91 percent
B)  8.03 percent
C)  8.22 percent
D)  8.27 percent
E)  7.64 percentF) B) and C)
G) A) and E)

Question 4

Assume that large-company stocks had an average return of 12.1 percent and a standard deviation of 19.6 percent for a 40-year period.What range of returns would you expect to see on these stocks 95 percent of the time?

Accepted Answer

A)  -30.3 percent to 53.2 percent
B)  -30.3 percent to 73.9 percent
C)  -30.3 percent to 64.1 percent
D)  -27.1 percent to 53.2 percent
E)  -27.1 percent to 51.3 percentF) A) and B)
G) C) and D)

Question 5

The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield and reported in your textbook, are based on the:

Accepted Answer

A)  largest 20 percent of the stocks traded on the NYSE.
B)  stock returns for the largest 10 percent of the publicly traded firms in the U.S.
C)  returns of the 100 largest firms in the U.S.
D)  returns of all the stocks listed on the NYSE.
E)  stocks of the 500 companies included in the S&P 500 index.F) B) and D)
G) C) and D)

Question 6

Over the period of 1926-2014:

Accepted Answer

A)  long-term government bonds underperformed long-term corporate bonds.
B)  small-company stocks underperformed large-company stocks.
C)  inflation exceeded the rate of return on U.S.Treasury bills.
D)  U.S.Treasury bills outperformed long-term government bonds.
E)  large-company stocks outperformed all other investment categories.F) B) and E)
G) B) and C)

Question 7

One year ago, you purchased 500 shares of stock for $22 a share.The stock pays $0.32 a share in dividends each year.Today, you sold your shares for $24.50 a share.What is your total dollar return on this investment?

Accepted Answer

A)  $1,250
B)  $1,090
C)  $1,199
D)  $1,164
E)  $1,410F) A) and B)
G) C) and E)

Question 8

Over the last four years, the common stock of Plymouth Shippers has had an arithmetic average return of 10.4 percent.Three of those four years produced returns of 16.1 percent, 15.6 percent, and 9.4 percent, respectively.What is the geometric average return for this four-year period?

Accepted Answer

A)  9.72 percent
B)  10.41 percent
C)  8.93 percent
D)  10.22 percent
E)  9.38 percentF) D) and E)
G) A) and E)

Question 9

One year ago, you purchased 800 shares of stock for $37 per share.The stock pays $0.25 a share in dividends each year.Today, you sold your shares for $43.25 per share.What is your total dollar return on this investment?

Accepted Answer

A)  $5,040
B)  $4,880
C)  $4,989
D)  $4,989.
E)  $5,200F) A) and D)
G) C) and D)

Question 10

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses.This news is totally unexpected and viewed as a major medical advancement.Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?

Accepted Answer

A)  The price of New Labs stock remains unchanged.
B)  The price of New Labs stock increases rapidly and then settles back to its pre-announcement level.
C)  The price of New Labs stock increases rapidly to a higher price and then remains at that price.
D)  All stocks quickly increase in value and then all but New Labs stock fall back to their original values.
E)  The value of all stocks suddenly increase and then level off at their higher values.F) B) and D)
G) A) and B)

Question 11

The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk.

Accepted Answer

A)  lower; lower
B)  lower; higher
C)  higher; lower
D)  higher; higherE) B) and C)
F) None of the above

Question 12

Which one of the following statements is true regarding the period 1926-2014?

Accepted Answer

A)  The returns on small-company stocks were less volatile than the returns on large-company stocks.
B)  The risk-free rate of return remained constant over the time period.
C)  U.S.Treasury bills had a positive average real rate of return.
D)  Bonds had an average rate of return that exceeded the average return on stocks.
E)  The inflation rate was just as volatile as the return on long-term bonds.F) A) and D)
G) A) and E)

Question 13

The rate of return on which one of the following has a risk premium of 0%?

Accepted Answer

A)  Long-term government bonds
B)  Long-term corporate bonds
C)  Intermediate-term government bonds
D)  U.S.Treasury bills
E)  Large-company stocksF) A) and E)
G) A) and B)

Question 14

Semistrong form market efficiency states that the value of a security is based on:

Accepted Answer

A)  all public and private information.
B)  historical information only.
C)  all publicly available information.
D)  all publicly available information plus any data that can be gathered from insider trading.
E)  random information with no clear distinction as to the source of that information.F) A) and B)
G) A) and C)

Question 15

Which one of the following statements is correct concerning both the dollar return and the percentage return on a stock investment?

Accepted Answer

A)  Without the size of an investment, the dollar return has less value than the percentage return.
B)  The dollar return is more accurate than the percentage return because the dollar return includes dividend income while the percentage return does not.
C)  The dollar return considers the time value of money while the percentage return does not.
D)  Dollar returns are based on capital gains while percentage returns are based on the total rate of return.
E)  Dollar returns must either be zero or a positive value while percentage returns can be negative, zero, or positive.F) B) and D)
G) D) and E)

Question 16

What is the probability associated with a return that lies in the upper tail when the mean plus two standard deviations is graphed?

Accepted Answer

A)  .05 percent
B)  .5 percent
C)  1.0 percent
D)  2.5 percent
E)  5.0 percentF) D) and E)
G) C) and E)

Question 17

According to the efficient markets hypothesis, professional investors will earn:

Accepted Answer

A)  excess profits over the long-term.
B)  excess profits, but only on short-term investments.
C)  a dollar return equal to the value paid for an investment.
D)  a return that cannot be accurately predicted because investments are subject to the random movements of the markets.
E)  a return that "beats the market."F) A) and E)
G) None of the above

Question 18

Your portfolio has provided you with returns of 11.4 percent, 6.2 percent, -.7 percent, and 14.6 percent over the past four years, respectively.What is the geometric average return for this period?

Accepted Answer

A)  7.25 percent
B)  7.72 percent
C)  7.57 percent
D)  7.63 percent
E)  7.55 percentF) A) and B)
G) D) and E)

Question 19

Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation?

Accepted Answer

A)  Arithmetic average return
B)  Variance
C)  Standard deviation
D)  Probability curve
E)  Normal distributionF) C) and D)
G) A) and D)

Question 20

Over the past four years, the annual percentage returns on large-company stocks were 15, 7, 4, and 18 percent.For the same time period, U.S.Treasury bills produced the returns of 6, 3, 2, and 4 percent.Inflation averaged 2.8 percent over the four-year period.The average real rate of return on large-company stocks was ___ percent as compared to _____ percent for Treasury bills.

Accepted Answer

A)  6.47; .92
B)  6.47; 1.08
C)  7.98; .92
D)  7.98; 1.08
E)  7.98; 1.22F) C) and D)
G) B) and E)

Exam 10: Some Lessons From Capital Market History

The rate of return on which one of the following has a risk premium of 0%?

Correct Answer
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Suppose you bought a$1,000 face value bond with a 5 percent coupon one year ago for $1,020.The bond sells today for $986.If the inflation rate last year was 2.3 percent, what was your total real rate of return on this investment?

Correct Answer
verified

Your portfolio has provided you with returns of 11.4 percent, 6.2 percent, -.7 percent, and 14.6 percent over the past four years, respectively.What is the geometric average return for this period?

Correct Answer
verified

The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield and reported in your textbook, are based on the:

Correct Answer
verified

Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation?

Correct Answer
verified

Over the last four years, the common stock of Plymouth Shippers has had an arithmetic average return of 10.4 percent.Three of those four years produced returns of 16.1 percent, 15.6 percent, and 9.4 percent, respectively.What is the geometric average return for this four-year period?

Correct Answer
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Correct Answer
verified

What is the probability associated with a return that lies in the upper tail when the mean plus two standard deviations is graphed?

Correct Answer
verified

Semistrong form market efficiency states that the value of a security is based on:

Correct Answer
verified

One year ago, you purchased 500 shares of stock for $22 a share.The stock pays $0.32 a share in dividends each year.Today, you sold your shares for $24.50 a share.What is your total dollar return on this investment?

Correct Answer
verified

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses.This news is totally unexpected and viewed as a major medical advancement.Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?

Correct Answer
verified

Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns?

Correct Answer
verified

According to the efficient markets hypothesis, professional investors will earn:

Correct Answer
verified

The common stock of Mountain Farms has yielded 14.2 percent, 11.7 percent, 3.4 percent, -2.8 percent, and 15.8 percent over the past five years, respectively.What is the geometric average return?

Correct Answer
verified

Which one of the following statements is true regarding the period 1926-2014?

Correct Answer
verified

Which one of the following statements is correct concerning both the dollar return and the percentage return on a stock investment?

Correct Answer
verified

The lower the standard deviation of returns on a security, the _ the expected rate of return and the _ the risk.

Correct Answer
verified

One year ago, you purchased 800 shares of stock for $37 per share.The stock pays $0.25 a share in dividends each year.Today, you sold your shares for $43.25 per share.What is your total dollar return on this investment?

Correct Answer
verified

Over the period of 1926-2014:

Correct Answer
verified

Assume that large-company stocks had an average return of 12.1 percent and a standard deviation of 19.6 percent for a 40-year period.What range of returns would you expect to see on these stocks 95 percent of the time?

Correct Answer
verified

Exam 10: Some Lessons From Capital Market History

The rate of return on which one of the following has a risk premium of 0%?

Correct AnswerverifiedShow Answer

Suppose you bought a$1,000 face value bond with a 5 percent coupon one year ago for $1,020.The bond sells today for $986.If the inflation rate last year was 2.3 percent, what was your total real rate of return on this investment?

Correct AnswerverifiedShow Answer

Your portfolio has provided you with returns of 11.4 percent, 6.2 percent, -.7 percent, and 14.6 percent over the past four years, respectively.What is the geometric average return for this period?

Correct AnswerverifiedShow Answer

The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield and reported in your textbook, are based on the:

Correct AnswerverifiedShow Answer

Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation?

Correct AnswerverifiedShow Answer

Over the last four years, the common stock of Plymouth Shippers has had an arithmetic average return of 10.4 percent.Three of those four years produced returns of 16.1 percent, 15.6 percent, and 9.4 percent, respectively.What is the geometric average return for this four-year period?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the probability associated with a return that lies in the upper tail when the mean plus two standard deviations is graphed?

Correct AnswerverifiedShow Answer

Semistrong form market efficiency states that the value of a security is based on:

Correct AnswerverifiedShow Answer

One year ago, you purchased 500 shares of stock for $22 a share.The stock pays $0.32 a share in dividends each year.Today, you sold your shares for $24.50 a share.What is your total dollar return on this investment?

Correct AnswerverifiedShow Answer

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses.This news is totally unexpected and viewed as a major medical advancement.Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?

Correct AnswerverifiedShow Answer

Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns?

Correct AnswerverifiedShow Answer

According to the efficient markets hypothesis, professional investors will earn:

Correct AnswerverifiedShow Answer

The common stock of Mountain Farms has yielded 14.2 percent, 11.7 percent, 3.4 percent, -2.8 percent, and 15.8 percent over the past five years, respectively.What is the geometric average return?

Correct AnswerverifiedShow Answer

Which one of the following statements is true regarding the period 1926-2014?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning both the dollar return and the percentage return on a stock investment?

Correct AnswerverifiedShow Answer

The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk.

Correct AnswerverifiedShow Answer

One year ago, you purchased 800 shares of stock for $37 per share.The stock pays $0.25 a share in dividends each year.Today, you sold your shares for $43.25 per share.What is your total dollar return on this investment?

Correct AnswerverifiedShow Answer

Over the period of 1926-2014:

Correct AnswerverifiedShow Answer

Assume that large-company stocks had an average return of 12.1 percent and a standard deviation of 19.6 percent for a 40-year period.What range of returns would you expect to see on these stocks 95 percent of the time?

Correct AnswerverifiedShow Answer

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The lower the standard deviation of returns on a security, the _ the expected rate of return and the _ the risk.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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