Question 1

Over the past 4 years, large-company stocks and U.S. Treasury bills have produced the returns stated below. During this period, inflation averaged 2.8 percent. Given this information, the average real rate of return on large-company stocks was ___ percent as compared to _____ percent for Treasury bills.

Accepted Answer

A)   6.47; 0.92
B)   6.47; 1.08
C)   7.98; 0.92
D)   7.98; 1.08
E)   7.98; 1.22F) C) and D)
G) C) and E)

Question 2

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) All of the above
G) C) and D)

Question 3

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 $76. What was the capital gains yield?

Accepted Answer

A)   2.70 percent
B)   3.29 percent
C)   3.78 percent
D)   4.01 percent
E)   4.23 percentF) A) and E)
G) B) and C)

Question 4

Assume that large-company stocks had an average return of 11.8 percent and a standard deviation of 20.7 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)   -50.3 percent to 53.2 percent
B)   -50.3 percent to 73.9 percent
C)   -50.3 percent to 64.1 percent
D)   -29.6 percent to 73.9 percent
E)   -29.6 percent to 53.2 percentF) A) and E)
G) A) and B)

Question 5

Five years ago, you purchased 600 shares of stock. The annual returns have been 7.2 percent, -19.4 percent, 3.8 percent, 14.2 percent, and 27.9 percent, respectively. What is the variance of these returns?

Accepted Answer

A)   0.029889
B)   0.030021
C)   0.030068
D)   0.030133
E)   0.030284F) C) and D)
G) B) and C)

Question 6

Dan is a chemist for ABC, a major drug manufacturer. Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are:

Accepted Answer

A)   weak form efficient.
B)   strong form efficient.
C)   semistrong form efficient.
D)   efficient at any level.
E)   aware that the trader is an insider.F) B) and E)
G) All of the above

Question 7

Which one of the following combinations will always result in an increased dividend yield?

Accepted Answer

A)   Increase in the stock price combined with a lower dividend amount
B)   Increase in the stock price combined with a higher dividend amount
C)   Decrease in the stock price combined with a lower dividend amount
D)   Decrease in the stock price combined with a higher dividend amount
E)   Increase in the stock price combined with a constant dividend amountF) C) and D)
G) D) and E)

Question 8

If the financial markets are efficient then:

Accepted Answer

A)   stock prices should remain constant.
B)   stock prices should increase or decrease slowly as new events are analyzed and the information is absorbed by the markets.
C)   an increase in the value of one security should be offset by a decrease in the value of another security.
D)   stock prices will only change when an event actually occurs, not at the time the event is anticipated.
E)   stock prices should only respond to unexpected news and events.F) A) and B)
G) A) and E)

Question 9

Which one of the following is the hypothesis that securities markets are efficient?

Accepted Answer

A)   Geometric market hypothesis
B)   Standard deviation hypothesis
C)   Efficient markets hypothesis
D)   Capital market hypothesis
E)   Financial markets hypothesisF) C) and E)
G) B) and C)

Question 10

If the financial markets are semi-strong 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) A) and E)
G) A) and C)

Question 11

The historical record for the period 1926-2008 shows that the annual nominal rate of return on:

Accepted Answer

A)   risk-free securities has averaged around 5 percent.
B)   the Consumer Price Index has been positive every year.
C)   U.S. Treasury bills have had a positive rate of return for every year in the period.
D)   U.S. Treasury bills is constant.
E)   large company stocks has averaged around 9 percent.F) B) and C)
G) B) and E)

Question 12

Windsor stock has produced returns of 22.6 percent, 18.7 percent, 11.3 percent, -19.8 percent, and 2.4 percent over the past five years, respectively. What is the variance of these returns?

Accepted Answer

A)   0.028453
B)   0.031947
C)   0.035682
D)   0.039515
E)   0.040016F) B) and C)
G) A) and E)

Question 13

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. What is the geometric average return for this 4-year period?

Accepted Answer

A)   7.72 percent
B)   8.41 percent
C)   8.93 percent
D)   9.16 percent
E)   9.368 percentF) All of the above
G) D) and E)

Question 14

An efficient capital market is best defined as a market in which security prices reflect which one of the following?

Accepted Answer

A)   Current inflation
B)   A risk premium
C)   Available information
D)   The historical arithmetic rate of return
E)   The historical geometric rate of returnF) A) and E)
G) A) and B)

Question 15

You purchased a zero-coupon bond one year ago for $291.22. The market interest rate is now 8.75 percent. If the bond had 16 years to maturity when you originally purchased it, what was your total return for the past year if the face value of the bond is $1,000?

Accepted Answer

A)   -4.97 percent
B)   -2.18 percent
C)   1.34 percent
D)   2.65 percent
E)   2.90 percentF) B) and C)
G) B) and E)

Exam 10: Some Lessons From Capital Market History

Dan is a chemist for ABC, a major drug manufacturer. Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are:

Correct Answer
verified

The historical record for the period 1926-2008 shows that the annual nominal rate of return on:

Correct Answer
verified

Which one of the following is the hypothesis that securities markets are efficient?

Correct Answer
verified

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 $76. What was the capital gains yield?

Correct Answer
verified

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. What is the geometric average return for this 4-year period?

Correct Answer
verified

Over the past 4 years, large-company stocks and U.S. Treasury bills have produced the returns stated below. During this period, inflation averaged 2.8 percent. Given this information, the average real rate of return on large-company stocks was _ percent as compared to ___ percent for Treasury bills.

Correct Answer
verified

Five years ago, you purchased 600 shares of stock. The annual returns have been 7.2 percent, -19.4 percent, 3.8 percent, 14.2 percent, and 27.9 percent, respectively. What is the variance of these returns?

Correct Answer
verified

You purchased a zero-coupon bond one year ago for $291.22. The market interest rate is now 8.75 percent. If the bond had 16 years to maturity when you originally purchased it, what was your total return for the past year if the face value of the bond is $1,000?

Correct Answer
verified

An efficient capital market is best defined as a market in which security prices reflect which one of the following?

Correct Answer
verified

Windsor stock has produced returns of 22.6 percent, 18.7 percent, 11.3 percent, -19.8 percent, and 2.4 percent over the past five years, respectively. What is the variance of these returns?

Correct Answer
verified

If the financial markets are efficient then:

Correct Answer
verified

Assume that large-company stocks had an average return of 11.8 percent and a standard deviation of 20.7 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

If the financial markets are semi-strong form efficient, then:

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

Which one of the following combinations will always result in an increased dividend yield?

Correct Answer
verified

Exam 10: Some Lessons From Capital Market History

Dan is a chemist for ABC, a major drug manufacturer. Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are:

Correct AnswerverifiedShow Answer

The historical record for the period 1926-2008 shows that the annual nominal rate of return on:

Correct AnswerverifiedShow Answer

Which one of the following is the hypothesis that securities markets are efficient?

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 $76. What was the capital gains yield?

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. What is the geometric average return for this 4-year period?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Five years ago, you purchased 600 shares of stock. The annual returns have been 7.2 percent, -19.4 percent, 3.8 percent, 14.2 percent, and 27.9 percent, respectively. What is the variance of these returns?

Correct AnswerverifiedShow Answer

You purchased a zero-coupon bond one year ago for $291.22. The market interest rate is now 8.75 percent. If the bond had 16 years to maturity when you originally purchased it, what was your total return for the past year if the face value of the bond is $1,000?

Correct AnswerverifiedShow Answer

An efficient capital market is best defined as a market in which security prices reflect which one of the following?

Correct AnswerverifiedShow Answer

Windsor stock has produced returns of 22.6 percent, 18.7 percent, 11.3 percent, -19.8 percent, and 2.4 percent over the past five years, respectively. What is the variance of these returns?

Correct AnswerverifiedShow Answer

If the financial markets are efficient then:

Correct AnswerverifiedShow Answer

Assume that large-company stocks had an average return of 11.8 percent and a standard deviation of 20.7 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

If the financial markets are semi-strong form efficient, then:

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

Which one of the following combinations will always result in an increased dividend yield?

Correct AnswerverifiedShow Answer

Correct Answer
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