Question 1

Based on the period 1926-2014, what rate of return should you expect to earn over the long-term if you are unwilling to bear risk?

Accepted Answer

A) Between 0 and 1 percent 
B) Between 1 and 2 percent 
C) Between 2 and 3 percent 
D) Between 3 and 4 percent 
E) Between 4 and 5 percent 
A) Between 0 and 1 percent 
B) Between 1 and 2 percent 
C) Between 2 and 3 percent 
D) Between 3 and 4 percent 
E) Between 4 and 5 percent

Question 2

Assume that last year, Catrin earned 9.8 percent on his investments while U.S.Treasury bills yielded 2.3 percent, and the inflation rate was 1.4 percent.What real rate of return did he earn on his investments last year?

Accepted Answer

A) 8.76 percent 
B) 8.28 percent 
C) 10.69 percent 
D) 9.37 percent 
E) 7.52 percent 
A) 8.76 percent 
B) 8.28 percent 
C) 10.69 percent 
D) 9.37 percent 
E) 7.52 percent

Question 3

What was the average annual risk premium on small-company stocks for the period 1926-2014?

Accepted Answer

A) 12.3 percent 
B) 11.2 percent 
C) 12.9 percent 
D) 13.2 percent 
E) 13.5 percent 
A) 12.3 percent 
B) 11.2 percent 
C) 12.9 percent 
D) 13.2 percent 
E) 13.5 percent

Question 4

You bought a share of 7.5 percent preferred stock for $91.60 last year.The market price for your stock is now $89.10.What is your total return to date on this investment?

Accepted Answer

A) 5.51 percent 
B) 4.73 percent 
C) 5.86 percent 
D) 6.10 percent 
E) 5.46 percent 
A) 5.51 percent 
B) 4.73 percent 
C) 5.86 percent 
D) 6.10 percent 
E) 5.46 percent

Question 5

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) Never 
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) Never

Question 6

Which one of the following has the narrowest distribution of returns for the period 1926-2014?

Accepted Answer

A) Long-term corporate bonds 
B) Long-term government bonds 
C) Intermediate-term government bonds 
D) Large-company stocks 
E) Small-company stocks 
A) Long-term corporate bonds 
B) Long-term government bonds 
C) Intermediate-term government bonds 
D) Large-company stocks 
E) Small-company stocks

Question 7

A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9 percent over the past five years, respectively.Based on these five years, what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

Accepted Answer

A) .50 percent 
B) 1.00 percent 
C) 1.25 percent 
D) 2.50 percent 
E) 5.00 percent 
A) .50 percent 
B) 1.00 percent 
C) 1.25 percent 
D) 2.50 percent 
E) 5.00 percent

Question 8

A stock produced returns of 14 percent, 17percent, and -1 percent over three of the past four years, respectively.The arithmetic average for the past four years is 6 percent.What is the standard deviation of the stock's returns for the four-year period?

Accepted Answer

A) 11.63 percent 
B) 15.94 percent 
C) 9.70 percent 
D) 6.25 percent 
E) 11.23 percent 
A) 11.63 percent 
B) 15.94 percent 
C) 9.70 percent 
D) 6.25 percent 
E) 11.23 percent

Question 9

You've observed the following returns on Blast It Corporation's stock over the past five years: 19 percent, -23 percent, 31 percent, 18 percent, and -7 percent, respectively.What was the variance of the returns over this period?

Accepted Answer

A) .03598 
B) .04838 
C) .03692 
D) .04714 
E) .03781 
A) .03598 
B) .04838 
C) .03692 
D) .04714 
E) .03781

Question 10

One year ago, Stacey purchased 100 shares of KNF stock for $3,245.Today, she sold those shares for $35.00 per share.What is the capital gains yield on this investment if the dividend yield is 1.4 percent?

Accepted Answer

A) -7.29 percent 
B) -7.86 percent 
C) 5.96 percent 
D) 7.86 percent 
E) 7.11 percent 
A) -7.29 percent 
B) -7.86 percent 
C) 5.96 percent 
D) 7.86 percent 
E) 7.11 percent

Question 11

Assume that long-term corporate bonds had an average return of 6.4 percent and a standard deviation of 2.9 percent for a 50-year period.What range of returns would you expect to see on these bonds 68 percent of the time?

Accepted Answer

A) 3.5 percent to 9.3 percent 
B) 3.5 percent to 10.9 percent 
C) 2.9 percent to 6.4 percent 
D) .6 percent to 11.9 percent 
E) .6 percent to 12.2 percent 
A) 3.5 percent to 9.3 percent 
B) 3.5 percent to 10.9 percent 
C) 2.9 percent to 6.4 percent 
D) .6 percent to 11.9 percent 
E) .6 percent to 12.2 percent

Question 12

Assume that over the past 88 years, U.S.Treasury bills had an average return of 3.5 percent as compared to 6.1 percent on long-term government bonds.During this same time period, assume inflation averaged 3.0 percent.What was the average nominal risk premium on the long-term government bonds?

Accepted Answer

A) 3.1 percent 
B) .1 percent 
C) 2.9 percent 
D) 1.8 percent 
E) 2.6 percent 
A) 3.1 percent 
B) .1 percent 
C) 2.9 percent 
D) 1.8 percent 
E) 2.6 percent

Question 13

One year ago, you bought a stock for $37.25 per share.You received a dividend of $1.27 per share last month and sold the stock today for $39.75 per share.What is the capital gains yield on this investment?

Accepted Answer

A) 5.95 percent 
B) -6.29 percent 
C) 6.71 percent 
D) 3.19 percent 
E) -3.19 percent 
A) 5.95 percent 
B) -6.29 percent 
C) 6.71 percent 
D) 3.19 percent 
E) -3.19 percent

Question 14

Over the past four years, a stock produced returns of 6 percent, 8 percent, 19 percent, and 2 percent, respectively.Based on these four years, what range of returns would you expect to see 95 percent of the time?

Accepted Answer

A) -.58 percent to 31.33 percent 
B) -5.80 percent to 27.02 percent 
C) -.23 percent to 24.39 percent 
D) -.02 percent to 24.39 percent 
E) -5.80 percent to 23.30 percent 
A) -.58 percent to 31.33 percent 
B) -5.80 percent to 27.02 percent 
C) -.23 percent to 24.39 percent 
D) -.02 percent to 24.39 percent 
E) -5.80 percent to 23.30 percent

Question 15

Assume that large-company stocks had an average rate of return of 18.5 percent over the past 55 years while T-bills returned an average of 2.4 percent and inflation averaged 1.8 percent.Given this, the real return on large-company stocks was:

Accepted Answer

A) 13.56 percent 
B) 12.49 percent 
C) 16.40 percent 
D) 14.83 percent 
E) 15.99 percent 
A) 13.56 percent 
B) 12.49 percent 
C) 16.40 percent 
D) 14.83 percent 
E) 15.99 percent

Question 16

Sarah earned a 3.3 percent real rate of return on her investments for the past year.During that time, the risk-free rate was 3.6 percent and the inflation rate was 3.1 percent.What was her nominal rate of return?

Accepted Answer

A) 5.30 percent 
B) 6.06 percent 
C) 6.50 percent 
D) 6.67 percent 
E) 6.91 percent 
A) 5.30 percent 
B) 6.06 percent 
C) 6.50 percent 
D) 6.67 percent 
E) 6.91 percent

Question 17

Constant Dreamers Advertising pays a constant annual dividend of $1.45 per share on its stock.Last year at this time, the market rate of return on this stock was 11.5 percent.Today, the market rate has fallen to 10.2 percent.What would your capital gains yield have been if you had purchased this stock one year ago and then sold the stock today?

Accepted Answer

A) -13.11 percent 
B) -11.30 percent 
C) 11.35 percent 
D) 12.96 percent 
E) 12.75 percent 
A) -13.11 percent 
B) -11.30 percent 
C) 11.35 percent 
D) 12.96 percent 
E) 12.75 percent

Question 18

The historical record for the period 1926-2014 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. 
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.

Question 19

Over the past four years, a stock produced returns of 13 percent, -9 percent, 8 percent, and 14 percent, respectively.Based on these four years, what range of returns would you expect to see 99 percent of the time?

Accepted Answer

A) -25.48 percent to 38.48 percent 
B) -22.39 percent to 26.41 percent 
C) -32.39 percent to 48.56 percent 
D) -18.46 percent to 22.41 percent 
E) -18.46 percent to 24.39 percent 
A) -25.48 percent to 38.48 percent 
B) -22.39 percent to 26.41 percent 
C) -32.39 percent to 48.56 percent 
D) -18.46 percent to 22.41 percent 
E) -18.46 percent to 24.39 percent

Based on the period 1926-2014, what rate of return should you expect to earn over the long-term if you are unwilling to bear risk?

Assume that last year, Catrin earned 9.8 percent on his investments while U.S.Treasury bills yielded 2.3 percent, and the inflation rate was 1.4 percent.What real rate of return did he earn on his investments last year?

What was the average annual risk premium on small-company stocks for the period 1926-2014?

You bought a share of 7.5 percent preferred stock for $91.60 last year.The market price for your stock is now $89.10.What is your total return to date on this investment?

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

Which one of the following has the narrowest distribution of returns for the period 1926-2014?

A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9 percent over the past five years, respectively.Based on these five years, what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

A stock produced returns of 14 percent, 17percent, and -1 percent over three of the past four years, respectively.The arithmetic average for the past four years is 6 percent.What is the standard deviation of the stock's returns for the four-year period?

You've observed the following returns on Blast It Corporation's stock over the past five years: 19 percent, -23 percent, 31 percent, 18 percent, and -7 percent, respectively.What was the variance of the returns over this period?

One year ago, Stacey purchased 100 shares of KNF stock for $3,245.Today, she sold those shares for $35.00 per share.What is the capital gains yield on this investment if the dividend yield is 1.4 percent?

Assume that long-term corporate bonds had an average return of 6.4 percent and a standard deviation of 2.9 percent for a 50-year period.What range of returns would you expect to see on these bonds 68 percent of the time?

Assume that over the past 88 years, U.S.Treasury bills had an average return of 3.5 percent as compared to 6.1 percent on long-term government bonds.During this same time period, assume inflation averaged 3.0 percent.What was the average nominal risk premium on the long-term government bonds?

One year ago, you bought a stock for $37.25 per share.You received a dividend of $1.27 per share last month and sold the stock today for $39.75 per share.What is the capital gains yield on this investment?

Over the past four years, a stock produced returns of 6 percent, 8 percent, 19 percent, and 2 percent, respectively.Based on these four years, what range of returns would you expect to see 95 percent of the time?

Assume that large-company stocks had an average rate of return of 18.5 percent over the past 55 years while T-bills returned an average of 2.4 percent and inflation averaged 1.8 percent.Given this, the real return on large-company stocks was:

Sarah earned a 3.3 percent real rate of return on her investments for the past year.During that time, the risk-free rate was 3.6 percent and the inflation rate was 3.1 percent.What was her nominal rate of return?

The historical record for the period 1926-2014 shows that the annual nominal rate of return on:

Over the past four years, a stock produced returns of 13 percent, -9 percent, 8 percent, and 14 percent, respectively.Based on these four years, what range of returns would you expect to see 99 percent of the time?

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

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Exam 10: Some Lessons From Capital Market History

Based on the period 1926-2014, what rate of return should you expect to earn over the long-term if you are unwilling to bear risk?

Assume that last year, Catrin earned 9.8 percent on his investments while U.S.Treasury bills yielded 2.3 percent, and the inflation rate was 1.4 percent.What real rate of return did he earn on his investments last year?

What was the average annual risk premium on small-company stocks for the period 1926-2014?

You bought a share of 7.5 percent preferred stock for $91.60 last year.The market price for your stock is now $89.10.What is your total return to date on this investment?

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

Which one of the following has the narrowest distribution of returns for the period 1926-2014?

A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9 percent over the past five years, respectively.Based on these five years, what is the probability that an investor in this stock will lose more than 17.06 percent in any one given year?

A stock produced returns of 14 percent, 17percent, and -1 percent over three of the past four years, respectively.The arithmetic average for the past four years is 6 percent.What is the standard deviation of the stock's returns for the four-year period?

You've observed the following returns on Blast It Corporation's stock over the past five years: 19 percent, -23 percent, 31 percent, 18 percent, and -7 percent, respectively.What was the variance of the returns over this period?

One year ago, Stacey purchased 100 shares of KNF stock for $3,245.Today, she sold those shares for $35.00 per share.What is the capital gains yield on this investment if the dividend yield is 1.4 percent?

Assume that long-term corporate bonds had an average return of 6.4 percent and a standard deviation of 2.9 percent for a 50-year period.What range of returns would you expect to see on these bonds 68 percent of the time?

Assume that over the past 88 years, U.S.Treasury bills had an average return of 3.5 percent as compared to 6.1 percent on long-term government bonds.During this same time period, assume inflation averaged 3.0 percent.What was the average nominal risk premium on the long-term government bonds?

One year ago, you bought a stock for $37.25 per share.You received a dividend of $1.27 per share last month and sold the stock today for $39.75 per share.What is the capital gains yield on this investment?

Over the past four years, a stock produced returns of 6 percent, 8 percent, 19 percent, and 2 percent, respectively.Based on these four years, what range of returns would you expect to see 95 percent of the time?

Assume that large-company stocks had an average rate of return of 18.5 percent over the past 55 years while T-bills returned an average of 2.4 percent and inflation averaged 1.8 percent.Given this, the real return on large-company stocks was:

Sarah earned a 3.3 percent real rate of return on her investments for the past year.During that time, the risk-free rate was 3.6 percent and the inflation rate was 3.1 percent.What was her nominal rate of return?

The historical record for the period 1926-2014 shows that the annual nominal rate of return on:

Over the past four years, a stock produced returns of 13 percent, -9 percent, 8 percent, and 14 percent, respectively.Based on these four years, what range of returns would you expect to see 99 percent of the time?

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