Question 1

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) All available information 
D) The historical arithmetic rate of return 
E) The historical geometric rate of return 
A) Current inflation 
B) A risk premium 
C) All available information 
D) The historical arithmetic rate of return 
E) The historical geometric rate of return

Question 2

Assume the securities markets are strong form efficient.Given this assumption, you should expect which one of the following to occur?

Accepted Answer

A) The risk premium on any security in that market will be zero. 
B) The price of any one security in that market will remain constant at its current level. 
C) Each security in the market will have an annual rate of return equal to the risk-free rate. 
D) The price of each security in that market will frequently fluctuate. 
E) The prices of each security will fall to zero because the net present value of the investments will be zero. 
A) The risk premium on any security in that market will be zero. 
B) The price of any one security in that market will remain constant at its current level. 
C) Each security in the market will have an annual rate of return equal to the risk-free rate. 
D) The price of each security in that market will frequently fluctuate. 
E) The prices of each security will fall to zero because the net present value of the investments will be zero.

Question 3

Over the past six years, a stock had annual returns of 12 percent, -3 percent, 2 percent, 27 4 percent, 9 percent, and 14 percent, respectively.What is the standard deviation of these returns?

Accepted Answer

A) 7.08 percent 
B) 6.47 percent 
C) 5.40 percent 
D) 6.89 percent 
E) 6.19 percent 
A) 7.08 percent 
B) 6.47 percent 
C) 5.40 percent 
D) 6.89 percent 
E) 6.19 percent

Question 4

You purchased a zero coupon bond one year ago for $296.50.The market interest rate is now 6.5 percent.If the bond had 15 years to maturity when you originally purchased it, what is your total return to date if the face value of the bond is $1,000?

Accepted Answer

A) 37.74 percent 
B) 27.40 percent 
C) 23.35 percent 
D) 19.95 percent 
E) 32.58 percent 
A) 37.74 percent 
B) 27.40 percent 
C) 23.35 percent 
D) 19.95 percent 
E) 32.58 percent

Question 5

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. 
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.

Question 6

A stock has returns for five years of 14 percent, -16 percent, 12 percent, 23 percent, and 4 percent, respectively.The stock has an average return of ______ percent and a standard deviation of _____ percent.

Accepted Answer

A) 7.40; 13.54 
B) 7.04; 14.63 
C) 7.40; 14.72 
D) 8.60; 14.63 
E) 8.60; 16.36 
A) 7.40; 13.54 
B) 7.04; 14.63 
C) 7.40; 14.72 
D) 8.60; 14.63 
E) 8.60; 16.36

Question 7

Which answer creates a false sentence? Percentage returns:

Accepted Answer

A) relay information about a security more easily than dollar returns do. 
B) are not affected by the amount of the investment. 
C) can be easily separated into dividend yields and capital gain yields. 
D) are easy to understand. 
E) are difficult to compute. 
A) relay information about a security more easily than dollar returns do. 
B) are not affected by the amount of the investment. 
C) can be easily separated into dividend yields and capital gain yields. 
D) are easy to understand. 
E) are difficult to compute.

Question 8

One year ago, you bought a stock for $62.35 per share.You received a dividend of $1.40 per share last month and sold the stock today for $63.75 per share.What is the capital gains yield on this investment?

Accepted Answer

A) 1.91 percent 
B) -2.30 percent 
C) 2.25 percent 
D) 2.40 percent 
E) -2.40 percent 
A) 1.91 percent 
B) -2.30 percent 
C) 2.25 percent 
D) 2.40 percent 
E) -2.40 percent

Question 9

Alpha Industries stock had returns of 17 percent, -11 percent, 9 percent, and 2 percent for four of the last five years, respectively.The average return of the stock over this period was 8.7 percent.What is the standard deviation of the stock's returns?

Accepted Answer

A) 14.67 percent 
B) 12.90 percent 
C) 15.14 percent 
D) 15.47 percent 
E) 14.31 percent 
A) 14.67 percent 
B) 12.90 percent 
C) 15.14 percent 
D) 15.47 percent 
E) 14.31 percent

Question 10

Which one of the following best describes an arithmetic average return?

Accepted Answer

A) Total return divided by N - 1, where N equals the number of individual returns 
B) Average compound return earned per year over a multiyear period 
C) Total compound return divided by the number of individual returns 
D) Return earned in an average year over a multiyear period 
E) Positive square root of the average compound return 
A) Total return divided by N - 1, where N equals the number of individual returns 
B) Average compound return earned per year over a multiyear period 
C) Total compound return divided by the number of individual returns 
D) Return earned in an average year over a multiyear period 
E) Positive square root of the average compound return

Question 11

The Lost Continent Store pays a constant dividend.Last year, the dividend yield was 5.75 percent when the stock was selling for $67.5 a share.What must the stock price be today if the market currently requires a 5.25 percent dividend yield on this stock?

Accepted Answer

A) $73.93 
B) $61.63 
C) $59.04 
D) $78.24 
E) $71.52 
A) $73.93 
B) $61.63 
C) $59.04 
D) $78.24 
E) $71.52

Question 12

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. 
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.

Question 13

The Fix Anything Store pays a constant dividend.Last year, the dividend yield was 4.5 percent when the stock was selling for $36.25 a share.What must the stock price be today if the market currently requires a 4 percent dividend yield on this stock?

Accepted Answer

A) $40.78 
B) $28.48 
C) $25.89 
D) $45.09 
E) $38.37 
A) $40.78 
B) $28.48 
C) $25.89 
D) $45.09 
E) $38.37

Question 14

You own a stock with an average return of 14.6 percent and a standard deviation of 21.2 percent.In any one given year, you have a 95 percent chance that you will not lose more than _____ percent nor earn more than ____ percent on this stock.

Accepted Answer

A) -25.2; 48.2 
B) -27.8; 57.0 
C) -42.4;57.0 
D) -43.6; 49.4 
E) -38.4; 42.6 
A) -25.2; 48.2 
B) -27.8; 57.0 
C) -42.4;57.0 
D) -43.6; 49.4 
E) -38.4; 42.6

Question 15

One year ago, you purchased 600 shares of a stock.This morning you sold those shares and realized a total return of 3.1 percent.Given this information, you know for sure the:

Accepted Answer

A) stock price increased by 3.1 percent over the last year. 
B) stock increased in value over the past year. 
C) stock paid a dividend. 
D) dividend yield is greater than zero. 
E) sum of the dividend yield and the capital gains yield is 3.1 percent. 
A) stock price increased by 3.1 percent over the last year. 
B) stock increased in value over the past year. 
C) stock paid a dividend. 
D) dividend yield is greater than zero. 
E) sum of the dividend yield and the capital gains yield is 3.1 percent.

Question 16

Based on the past 88 years, the inflation rate averaged 3.0 percent and the U.S.Treasury bill yield was 3.5 percent, and the historical risk premium on small-company stocks was 13.2 percent.If these averages hold, what nominal rate of return should you expect to earn on small-company stocks over the next several years?

Accepted Answer

A) 15.5 percent 
B) 16.7 percent 
C) 19.7 percent 
D) 13.5 percent 
E) 13.7 percent 
A) 15.5 percent 
B) 16.7 percent 
C) 19.7 percent 
D) 13.5 percent 
E) 13.7 percent

Question 17

You purchased 400 shares of KNO stock five years ago and have earned annual returns of 8.3 percent, 9.6 percent, 18.25 percent, -7.7 percent, and 1.8 percent, respectively.What is your arithmetic average return?

Accepted Answer

A) 5.47 percent 
B) 6.05 percent 
C) 6.23 percent 
D) 6.47 percent 
E) 8.01 percent 
A) 5.47 percent 
B) 6.05 percent 
C) 6.23 percent 
D) 6.47 percent 
E) 8.01 percent

Question 18

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Accepted Answer

A) Geometric average return 
B) Variance of returns 
C) Standard deviation of returns 
D) Arithmetic average return 
E) Normal distribution of returns 
A) Geometric average return 
B) Variance of returns 
C) Standard deviation of returns 
D) Arithmetic average return 
E) Normal distribution of returns

Question 19

Which one of the following could cause the total return on an investment to be a negative rate?

Accepted Answer

A) Constant annual dividend amount 
B) Increase in the annual dividend amount 
C) Stock price that remains constant over the investment period 
D) Stock price that declines over the investment period 
E) Stock price that increases over the investment period 
A) Constant annual dividend amount 
B) Increase in the annual dividend amount 
C) Stock price that remains constant over the investment period 
D) Stock price that declines over the investment period 
E) Stock price that increases over the investment period

Question 20

The average risk premium on long-term government bonds for the period 1926-2014 was equal to:

Accepted Answer

A) zero. 
B) 1 percent. 
C) the rate of return on the bonds plus the corporate bond rate. 
D) the rate of return on the bonds minus the T-bill rate. 
E) the rate of return on the bonds minus the inflation rate. 
A) zero. 
B) 1 percent. 
C) the rate of return on the bonds plus the corporate bond rate. 
D) the rate of return on the bonds minus the T-bill rate. 
E) the rate of return on the bonds minus the inflation rate.

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

Assume the securities markets are strong form efficient.Given this assumption, you should expect which one of the following to occur?

Over the past six years, a stock had annual returns of 12 percent, -3 percent, 2 percent, 27 4 percent, 9 percent, and 14 percent, respectively.What is the standard deviation of these returns?

You purchased a zero coupon bond one year ago for $296.50.The market interest rate is now 6.5 percent.If the bond had 15 years to maturity when you originally purchased it, what is your total return to date if the face value of the bond is $1,000?

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:

A stock has returns for five years of 14 percent, -16 percent, 12 percent, 23 percent, and 4 percent, respectively.The stock has an average return of __ percent and a standard deviation of _ percent.

Which answer creates a false sentence? Percentage returns:

One year ago, you bought a stock for $62.35 per share.You received a dividend of $1.40 per share last month and sold the stock today for $63.75 per share.What is the capital gains yield on this investment?

Alpha Industries stock had returns of 17 percent, -11 percent, 9 percent, and 2 percent for four of the last five years, respectively.The average return of the stock over this period was 8.7 percent.What is the standard deviation of the stock's returns?

Which one of the following best describes an arithmetic average return?

The Lost Continent Store pays a constant dividend.Last year, the dividend yield was 5.75 percent when the stock was selling for $67.5 a share.What must the stock price be today if the market currently requires a 5.25 percent dividend yield on this stock?

If the financial markets are semistrong form efficient, then:

The Fix Anything Store pays a constant dividend.Last year, the dividend yield was 4.5 percent when the stock was selling for $36.25 a share.What must the stock price be today if the market currently requires a 4 percent dividend yield on this stock?

You own a stock with an average return of 14.6 percent and a standard deviation of 21.2 percent.In any one given year, you have a 95 percent chance that you will not lose more than _ percent nor earn more than percent on this stock.

One year ago, you purchased 600 shares of a stock.This morning you sold those shares and realized a total return of 3.1 percent.Given this information, you know for sure the:

You purchased 400 shares of KNO stock five years ago and have earned annual returns of 8.3 percent, 9.6 percent, 18.25 percent, -7.7 percent, and 1.8 percent, respectively.What is your arithmetic average return?

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Which one of the following could cause the total return on an investment to be a negative rate?

The average risk premium on long-term government bonds for the period 1926-2014 was equal to:

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters

Exam 10: Some Lessons From Capital Market History

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

Assume the securities markets are strong form efficient.Given this assumption, you should expect which one of the following to occur?

Over the past six years, a stock had annual returns of 12 percent, -3 percent, 2 percent, 27 4 percent, 9 percent, and 14 percent, respectively.What is the standard deviation of these returns?

You purchased a zero coupon bond one year ago for $296.50.The market interest rate is now 6.5 percent.If the bond had 15 years to maturity when you originally purchased it, what is your total return to date if the face value of the bond is $1,000?

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:

A stock has returns for five years of 14 percent, -16 percent, 12 percent, 23 percent, and 4 percent, respectively.The stock has an average return of ______ percent and a standard deviation of _____ percent.

Which answer creates a false sentence? Percentage returns:

One year ago, you bought a stock for $62.35 per share.You received a dividend of $1.40 per share last month and sold the stock today for $63.75 per share.What is the capital gains yield on this investment?

Alpha Industries stock had returns of 17 percent, -11 percent, 9 percent, and 2 percent for four of the last five years, respectively.The average return of the stock over this period was 8.7 percent.What is the standard deviation of the stock's returns?

Which one of the following best describes an arithmetic average return?

The Lost Continent Store pays a constant dividend.Last year, the dividend yield was 5.75 percent when the stock was selling for $67.5 a share.What must the stock price be today if the market currently requires a 5.25 percent dividend yield on this stock?

If the financial markets are semistrong form efficient, then:

The Fix Anything Store pays a constant dividend.Last year, the dividend yield was 4.5 percent when the stock was selling for $36.25 a share.What must the stock price be today if the market currently requires a 4 percent dividend yield on this stock?

You own a stock with an average return of 14.6 percent and a standard deviation of 21.2 percent.In any one given year, you have a 95 percent chance that you will not lose more than _____ percent nor earn more than ____ percent on this stock.

One year ago, you purchased 600 shares of a stock.This morning you sold those shares and realized a total return of 3.1 percent.Given this information, you know for sure the:

You purchased 400 shares of KNO stock five years ago and have earned annual returns of 8.3 percent, 9.6 percent, 18.25 percent, -7.7 percent, and 1.8 percent, respectively.What is your arithmetic average return?

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Which one of the following could cause the total return on an investment to be a negative rate?

The average risk premium on long-term government bonds for the period 1926-2014 was equal to:

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters

A stock has returns for five years of 14 percent, -16 percent, 12 percent, 23 percent, and 4 percent, respectively.The stock has an average return of __ percent and a standard deviation of _ percent.

You own a stock with an average return of 14.6 percent and a standard deviation of 21.2 percent.In any one given year, you have a 95 percent chance that you will not lose more than _ percent nor earn more than percent on this stock.