Exam 12: Some Lessons from Capital Market History

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?

Which of the following statements are true based on the historical record for 1926-2016?

Which one of the following is a correct ranking of securities based on the volatility of their annual returns over the period of 1926-2016? Rank from highest to lowest.

Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return?

Generally speaking, which of the following best correspond to a wide frequency distribution?

Based on the past 13 years, Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 12.6 percent. The geometric average return for the same period was 11.8 percent. What is the estimated return on this stock for the next three years according to Blume's formula?

Over the past four years a stock had prices of $12.78, $13.34, $16.30, and $15.40, respectively. The stock pays an annual dividend of $.50 a share. What is the geometric average return on this stock?

Today, you sold 540 shares of stock and realized a total return of 7.3 percent. You purchased the shares one year ago at a price of $24 a share and have received a total of $86 in dividends. What is your capital gains yield on this investment?

The historical record for the period 1926-2016 supports which one of the following statements?

Stacy purchased a stock last year and sold it today for $4 a share more than her purchase price. She received a total of $1.15 per share in dividends. Which one of the following statements is correct in relation to this investment?

Four months ago, you purchased 900 shares of LBM stock for $7.68 a share. Last month, you received a dividend payment of $.12 a share. Today, you sold the shares for $9.13 a share. What is your total dollar return on this investment?

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

Which one of the following earned the highest risk premium over the period 1926-2016?

You bought one of Shark Repellant's 6 percent coupon bonds one year ago for $867. These bonds pay annual payments, have a face value of $1,000, and mature 12 years from now. Suppose you decide to sell your bonds today when the required return on the bonds is 7.4 percent. The inflation rate over the past year was 2.9 percent. What was your total real return on this investment?

A stock has an expected rate of return of 9.8 percent and a standard deviation of 15.4 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Aimee is the owner of a stock with annual returns of 17.6 percent, −11.7 percent, 5.6 percent, and 9.7 percent for the past four years. She thinks the stock may achieve a return of 17 percent again this coming year. What is the probability that your friend is correct?

Estimates of the rate of return on a security based on the historical arithmetic average will probably tend to ________ the expected return for the long-term and estimates using the historical geometric average will probably tend to ________ the expected return for the short-term.

Which one of the following had the least volatile annual returns over the period of 1926-2016?

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

A stock had returns of 12.4 percent, 16.6 percent, 10.2 percent, 19.0 percent, −15.7 percent, and 6.3 percent over the last six years. What is the geometric average return on the stock for this period?