Question 1

Which one of the following categories has the widest frequency distribution of returns for the period 1926-2011?

Accepted Answer

A)  Small-company stocks
B)  U.S. Treasury bills
C)  Long-term government bonds
D)  Inflation
E)  Large-company stockF) None of the above
G) A) and B)

Question 2

Last year,Isaac earned 10.6 percent on her investments while U.S.Treasury bills yielded 3.8 percent and the inflation rate was 3.1 percent.What real rate of return did she earn on her investments last year?

Accepted Answer

A)  6.63 percent
B)  7.27 percent
C)  8.56 percent
D)  9.24 percent
E)  10.39 percentF) A) and E)
G) A) and B)

Question 3

Over the last four years,the common stock of Plymouth Shippers has had an arithmetic average return of 9.3 percent.Three of those four years produced returns of 14.1 percent,15.6 percent,and 3.4 percent,respectively.What is the geometric average return for this four-year period?

Accepted Answer

A)  7.72 percent
B)  8.41 percent
C)  8.93 percent
D)  9.16 percent
E)  9.368 percentF) A) and E)
G) A) and C)

Question 4

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

Accepted Answer

A)  The dollar return is dependent on the size of the investment while the percentage return is not.
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) C) and D)

Question 5

A stock has produced returns of 11 percent,18 percent,-6 percent,-13 percent,and 21 percent for the past five years,respectively.What is the standard deviation of these returns?

Accepted Answer

A)  7.75 percent
B)  8.87 percent
C)  9.23 percent
D)  14.99 percent
E)  16.64 percentF) B) and E)
G) A) and E)

Question 6

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) All of the above
G) A) and B)

Question 7

When,if ever,will the geometric average return exceed the arithmetic average return for a given set of returns?

Accepted Answer

A)  When the set of returns includes only risk-free rates.
B)  When the set of returns has a wide frequency distribution.
C)  When the set of returns has a very narrow frequency distribution.
D)  When all of the rates of return in the set of returns are equal to each other.
E)  NeverF) A) and B)
G) All of the above

Question 8

A security produced returns of 13 percent,18 percent,9 percent,23 percent,and -17 percent over the past five years,respectively.Based on these five years,what is the probability that this stock will earn more than 24.76 percent in any one given year?

Accepted Answer

A)  0.5 percent
B)  1.0 percent
C)  2.5 percent
D)  5.0 percent
E)  16.0 percentF) A) and C)
G) A) and B)

Question 9

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) D) and E)
G) B) and D)

Question 10

The variance is the average squared difference between which of the following?

Accepted Answer

A)  Actual return and average return
B)  Actual return and (average return/N - 1) 
C)  Actual return and the real return
D)  Average return and the standard deviation
E)  Actual return and the risk-free rateF) D) and E)
G) B) and E)

Question 11

Over the period of 1926-2011:

Accepted Answer

A)  the risk premium on large-company stocks was greater than the risk premium on small- company stocks.
B)  U.S. Treasury bills had a risk premium that was just slightly over 2 percent.
C)  the risk premium on long-term government bonds was zero percent.
D)  the risk premium on stocks exceeded the risk premium on bonds.
E)  U. S. Treasury bills had a negative risk premium.F) A) and C)
G) B) and C)

Question 12

Which one of the following statements is correct?

Accepted Answer

A)  The risk-free rate of return has a risk premium of 1.0.
B)  The reward for bearing risk is called the standard deviation.
C)  Risks and expected return are inversely related.
D)  The higher the expected rate of return, the wider the distribution of returns.
E)  Risk premiums are inversely related to the standard deviation of returns.F) B) and C)
G) C) and D)

Question 13

Suppose a stock had an initial price of $74 per share,paid a dividend of $0.80 per share during the year,and had an ending share price of $77.What was the capital gains yield?

Accepted Answer

A)  2.70 percent
B)  3.29 percent
C)  3.78 percent
D)  4.05 percent
E)  4.94 percentF) A) and B)
G) C) and D)

Question 14

The rate of return on which one of the following is used as the risk-free rate?

Accepted Answer

A)  Long-term government bonds
B)  Long-term corporate bonds
C)  Inflation, as measured by the Consumer Price Index
D)  U.S. Treasury bill
E)  Large-company stocksF) C) and D)
G) A) and C)

Question 15

If the financial markets are semistrong form efficient,then:

Accepted Answer

A)  only the most talented analysts can determine the true value of a security.
B)  only individuals with private information have a marketplace advantage.
C)  technical analysis provides the best tool to use to gain a marketplace advantage.
D)  no one individual has an advantage in the marketplace.
E)  every security offers the same rate of return.F) C) and D)
G) A) and B)

Question 16

Home Grown Tomatoes stock returned 28.7 percent,2.6 percent,13.1 percent,12.2,and 11.8 percent over the past five years,respectively.What is the arithmetic average return for this period?

Accepted Answer

A)  13.68 percent
B)  14.62 percent
C)  15.10 percent
D)  15.93 percent
E)  17.10 percentF) A) and E)
G) B) and C)

Question 17

One year ago,LaTresa purchased 600 shares of Outland Co.stock for $3,600.The stock does not pay any regular dividends but it did pay a special dividend of $0.30 a share last week.This morning,she sold her shares for $7.25 a share.What was the total return on this investment?

Accepted Answer

A)  18.00 percent
B)  20.83 percent
C)  22.50 percent
D)  25.83 percent
E)  28.24 percentF) B) and C)
G) B) and D)

Question 18

Over the period of 1926-2011:

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) C) and D)

Question 19

You purchased 1,500 shares of KFC stock five years ago and have earned annual returns of 7.1 percent,11.2 percent,5.25 percent,-4.7 percent,and 11.8 percent,respectively.What is your arithmetic average return?

Accepted Answer

A)  4.47 percent
B)  6.13 percent
C)  6.23 percent
D)  6.47 percent
E)  8.01 percentF) A) and C)
G) None of the above

Question 20

Over the period of 1926-2011,U.S.Treasury bills had an average return of 3.8 percent while inflation averaged 3.1 percent.Based on this historical record,is it safe to assume that an investor in U.S.Treasury bills will enjoy a positive real rate of return each year?
 Why or why not?

Accepted Answer

No.While U.S.Treasury bills had positive...

Exam 10: Some Lessons From Capital Market History

Over the period of 1926-2011:

Correct AnswerverifiedShow Answer

Over the period of 1926-2011,U.S.Treasury bills had an average return of 3.8 percent while inflation averaged 3.1 percent.Based on this historical record,is it safe to assume that an investor in U.S.Treasury bills will enjoy a positive real rate of return each year? Why or why not?

Correct AnswerverifiedNo.While U.S.Treasury bills had positive...View AnswerShow Answer

A security produced returns of 13 percent,18 percent,9 percent,23 percent,and -17 percent over the past five years,respectively.Based on these five years,what is the probability that this stock will earn more than 24.76 percent in any one given year?

Correct AnswerverifiedShow Answer

Suppose a stock had an initial price of $74 per share,paid a dividend of $0.80 per share during the year,and had an ending share price of $77.What was the capital gains yield?

Correct AnswerverifiedShow Answer

If the financial markets are semistrong form efficient,then:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You purchased 1,500 shares of KFC stock five years ago and have earned annual returns of 7.1 percent,11.2 percent,5.25 percent,-4.7 percent,and 11.8 percent,respectively.What is your arithmetic average return?

Correct AnswerverifiedShow Answer

When,if ever,will the geometric average return exceed the arithmetic average return for a given set of returns?

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Home Grown Tomatoes stock returned 28.7 percent,2.6 percent,13.1 percent,12.2,and 11.8 percent over the past five years,respectively.What is the arithmetic average return for this period?

Correct AnswerverifiedShow Answer

Which one of the following categories has the widest frequency distribution of returns for the period 1926-2011?

Correct AnswerverifiedShow Answer

Over the last four years,the common stock of Plymouth Shippers has had an arithmetic average return of 9.3 percent.Three of those four years produced returns of 14.1 percent,15.6 percent,and 3.4 percent,respectively.What is the geometric average return for this four-year period?

Correct AnswerverifiedShow Answer

Over the period of 1926-2011:

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The rate of return on which one of the following is used as the risk-free rate?

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

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Last year,Isaac earned 10.6 percent on her investments while U.S.Treasury bills yielded 3.8 percent and the inflation rate was 3.1 percent.What real rate of return did she earn on her investments last year?

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 variance is the average squared difference between which of the following?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

One year ago,LaTresa purchased 600 shares of Outland Co.stock for $3,600.The stock does not pay any regular dividends but it did pay a special dividend of $0.30 a share last week.This morning,she sold her shares for $7.25 a share.What was the total return on this investment?

Correct AnswerverifiedShow Answer

A stock has produced returns of 11 percent,18 percent,-6 percent,-13 percent,and 21 percent for the past five years,respectively.What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

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No.While U.S.Treasury bills had positive...
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