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Commerce and BusinessbackBusinessbackCorporate Finance/Financial ManagementbackFundamentals of Corporate FinancebackPractice Set 2492back

Some Lessons From Capital Market History

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Question 1
Free
Multiple Choice

Last year,T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent.Which one of the following terms refers to the difference between these two rates of return?

Choose correct answer/s
A

risk premium

B

geometric return

C

arithmetic

D

standard deviation

E

variance

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Question 2
Free
Multiple Choice

Which one of the following best defines the variance of an investment's annual returns over a number of years?

Choose correct answer/s
A

The average squared difference between the arithmetic and the geometric average annual returns.

B

The squared summation of the differences between the actual returns and the average geometric return.

C

The average difference between the annual returns and the average return for the period.

D

The difference between the arithmetic average and the geometric average return for the period.

E

The average squared difference between the actual returns and the arithmetic average return.

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Question 3
Free
Multiple Choice

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

Choose correct answer/s
A

average rate of return

B

volatility

C

probability

D

risk premium

E

real returns

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Question 4
Free
Multiple Choice

Which one of the following is defined by its mean and its standard deviation?

Choose correct answer/s
A

arithmetic nominal return

B

geometric real return

C

normal distribution

D

variance

E

risk premium

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Question 5
Free
Multiple Choice

The average compound return earned per year over a multi-year period is called the _____ average return.

Choose correct answer/s
A

arithmetic

B

standard

C

variant

D

geometric

E

real

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Question 6
Multiple Choice

The return earned in an average year over a multi-year period is called the _____ average return.

Choose correct answer/s
A
arithmetic
B
standard
C
variant
D
geometric
E
real
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Question 7
Multiple Choice

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities.Which one of the following terms best defines that market?

Choose correct answer/s
A
riskless market
B
evenly distributed market
C
zero volatility market
D
Blume's market
E
efficient capital market
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Question 8
Multiple Choice

Which one of the following statements best defines the efficient market hypothesis?

Choose correct answer/s
A
Efficient markets limit competition.
B
Security prices in efficient markets remain steady as new information becomes available.
C
Mispriced securities are common in efficient markets.
D
All securities in an efficient market are zero net present value investments.
E
Profits are removed as a market incentive when markets become efficient.
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Question 9
Multiple Choice

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?

Choose correct answer/s
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.
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Question 10
Multiple Choice

Which one of the following correctly describes the dividend yield?

Choose correct answer/s
A
next year's annual dividend divided by today's stock price
B
this year's annual dividend divided by today's stock price
C
this year's annual dividend divided by next year's expected stock price
D
next year's annual dividend divided by this year's annual dividend
E
the increase in next year's dividend over this year's dividend divided by this year's dividend
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Question 11
Multiple Choice

Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately.If the dividend yield remains at its pre-announcement level,then you know the stock price:

Choose correct answer/s
A
was unaffected by the announcement.
B
increased proportionately with the dividend decrease.
C
decreased proportionately with the dividend decrease.
D
decreased by $0.14 per share.
E
increased by $0.14 per share.
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Question 12
Multiple Choice

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

Choose correct answer/s
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.
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Question 13
Multiple Choice

Which of the following statements is correct in relation to a stock investment?
I)The capital gains yield can be positive,negative,or zero.
II)The dividend yield can be positive,negative,or zero.
III)The total return can be positive,negative,or zero.
IV)Neither the dividend yield nor the total return can be negative.

Choose correct answer/s
A
I only
B
I and II only
C
I and III only
D
I and IV only
E
IV only
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Question 14
Multiple Choice

The real rate of return on a stock is approximately equal to the nominal rate of return:

Choose correct answer/s
A
multiplied by (1 + inflation rate).
B
plus the inflation rate.
C
minus the inflation rate.
D
divided by (1 + inflation rate).
E
divided by (1 - inflation rate).
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Question 15
Multiple Choice

As long as the inflation rate is positive,the real rate of return on a security will be ____ the nominal rate of return.

Choose correct answer/s
A
greater than
B
equal to
C
less than
D
greater than or equal to
E
unrelated to
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Question 16
Multiple Choice

Small-company stocks,as the term is used in the textbook,are best defined as the:

Choose correct answer/s
A
500 newest corporations in the U.S.
B
firms whose stock trades OTC.
C
smallest twenty percent of the firms listed on the NYSE.
D
smallest twenty-five percent of the firms listed on NASDAQ.
E
firms whose stock is listed on NASDAQ.
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Question 17
Multiple Choice

Which one of the following statements is a correct reflection of the U.S.markets for the period 1926-2010?

Choose correct answer/s
A
U.S. Treasury bill returns never exceeded a 9 percent return in any one year during the period.
B
U.S. Treasury bills provided a positive rate of return each and every year during the period.
C
Inflation equaled or exceeded the return on U.S. Treasury bills every year during the period.
D
Long-term government bonds outperformed U.S. Treasury bills every year during the period.
E
National deflation occurred at least once every decade during the period.
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Question 18
Multiple Choice

Which one of the following categories of securities had the highest average return for the period 1926-2010?

Choose correct answer/s
A
U.S. Treasury bills
B
large company stocks
C
small company stocks
D
long-term corporate bonds
E
long-term government bonds
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Question 19
Multiple Choice

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

Choose correct answer/s
A
long-term government bonds
B
small company stocks
C
large company stocks
D
long-term corporate bonds
E
U.S. Treasury bills
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Question 20
Multiple Choice

Which one of the following categories of securities has had the most volatile returns over the period 1926-2010?

Choose correct answer/s
A
long-term corporate bonds
B
large-company stocks
C
intermediate-term government bonds
D
U.S. Treasury bills
E
small-company stocks
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