Question 1

What are the arithmetic and geometric average returns for a stock with annual returns of 14.9 percent,14.6 percent,−2.8 percent,and 9.7 percent?

Accepted Answer

A) 9.100%; 8.673% 
B) 8.882%; 8.854% 
C) 9.100%; 8.771% 
D) 8.897%; 8.854% 
E) 9.100%; 8.854% 
A) 9.100%; 8.673% 
B) 8.882%; 8.854% 
C) 9.100%; 8.771% 
D) 8.897%; 8.854% 
E) 9.100%; 8.854%

Question 2

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the

Accepted Answer

A) geometric average return. 
B) inflation premium. 
C) risk premium. 
D) time premium. 
E) arithmetic average return. 
A) geometric average return. 
B) inflation premium. 
C) risk premium. 
D) time premium. 
E) arithmetic average return.

Question 3

How did long-term U.S.Treasury bonds perform in 2008?

Accepted Answer

A) Decreased by more than 15 percent 
B) Decreased between 5 and 15 percent 
C) Changed between -5 and +5 percent 
D) Increased between 5 and 15 percent 
E) Increased more than 15 percent 
A) Decreased by more than 15 percent 
B) Decreased between 5 and 15 percent 
C) Changed between -5 and +5 percent 
D) Increased between 5 and 15 percent 
E) Increased more than 15 percent

Question 4

Winter's just declared an increase in its annual dividend from $.82 a share to $.85 a share.If the stock price should remain constant,then

Accepted Answer

A) the capital gains yield would decrease. 
B) the capital gains yield would increase. 
C) the dividend yield would remain constant. 
D) the dividend yield would increase. 
E) neither the capital gains yield nor the dividend yield would change. 
A) the capital gains yield would decrease. 
B) the capital gains yield would increase. 
C) the dividend yield would remain constant. 
D) the dividend yield would increase. 
E) neither the capital gains yield nor the dividend yield would change.

Question 5

Which one of these countries had the highest average stock market risk premium for the period 1900 to 2010?

Accepted Answer

A) United States 
B) United Kingdom 
C) Italy 
D) Sweden 
E) Denmark 
A) United States 
B) United Kingdom 
C) Italy 
D) Sweden 
E) Denmark

Question 6

Based on the period 1926 to 2015,which category of securities has outperformed all of the other categories?

Accepted Answer

A) Long-term corporate bonds 
B) U.S.Treasury bills 
C) Small-company stocks 
D) Large-company stocks 
E) Long-term government bonds 
A) Long-term corporate bonds 
B) U.S.Treasury bills 
C) Small-company stocks 
D) Large-company stocks 
E) Long-term government bonds

Question 7

As of 2015,the United States represents about ________ percent of the total world stock market capitalization.

Accepted Answer

A) 53 
B) 67 
C) 27 
D) 38 
E) 19 
A) 53 
B) 67 
C) 27 
D) 38 
E) 19

Question 8

A stock had returns of 7 percent,7 percent,7 percent,and 7 percent annually over the past 4 years.What is the geometric average return for this time period?

Accepted Answer

A) 6.875% 
B) 7% 
C) 6.929% 
D) 9.998% 
E) 9.441% 
A) 6.875% 
B) 7% 
C) 6.929% 
D) 9.998% 
E) 9.441%

Question 9

What lesson can be learned from the 2008 market decline?

Accepted Answer

A) Stocks and bonds react similarly in downward markets. 
B) Diversification lowers risk. 
C) Market declines cause high inflation rates. 
D) Global markets all react exactly the same. 
E) Equity risk premiums will decline in the future. 
A) Stocks and bonds react similarly in downward markets. 
B) Diversification lowers risk. 
C) Market declines cause high inflation rates. 
D) Global markets all react exactly the same. 
E) Equity risk premiums will decline in the future.

Question 10

Deltona stock sold for $52.84 a share 1 year ago and pays an annual dividend of $3.20.What does the stock price need to be today for the annual capital gain to be 6.8 percent?

Accepted Answer

A) $53.23 
B) $49.25 
C) $56.43 
D) $48.63 
E) $54.18 
A) $53.23 
B) $49.25 
C) $56.43 
D) $48.63 
E) $54.18

Question 11

The higher the Sharpe ratio,the

Accepted Answer

A) greater the total risk. 
B) greater the return per unit of risk. 
C) more the security resembles the overall market. 
D) greater the risk per unit of return. 
E) lower the level of total risk. 
A) greater the total risk. 
B) greater the return per unit of risk. 
C) more the security resembles the overall market. 
D) greater the risk per unit of return. 
E) lower the level of total risk.

Question 12

On average,for the period 1926 to 2015

Accepted Answer

A) U.S.Treasury bills had a negative risk premium. 
B) small-company stocks underperformed large-company stocks. 
C) large-company stocks had a higher risk premium than long-term corporate bonds. 
D) intermediate-term government bonds produced higher returns than long-term government bonds. 
E) large-company stocks had a higher risk premium than small-company stocks. 
A) U.S.Treasury bills had a negative risk premium. 
B) small-company stocks underperformed large-company stocks. 
C) large-company stocks had a higher risk premium than long-term corporate bonds. 
D) intermediate-term government bonds produced higher returns than long-term government bonds. 
E) large-company stocks had a higher risk premium than small-company stocks.

Question 13

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 to 2015?

Accepted Answer

A) Long-term corporate bonds 
B) Long-term government bonds 
C) Small-company stocks 
D) Large-company stocks 
E) U.S.Treasury bills 
A) Long-term corporate bonds 
B) Long-term government bonds 
C) Small-company stocks 
D) Large-company stocks 
E) U.S.Treasury bills

Question 14

Suppose you own a risky asset with an expected return of 18.2 percent and a standard deviation of 27.2 percent.If the returns are normally distributed,the approximate probability of losing 9 percent or more in a single year is ________ percent.

Accepted Answer

A) .26 
B) 4.56 
C) 15.87 
D) 31.74 
E) 2.28 
A) .26 
B) 4.56 
C) 15.87 
D) 31.74 
E) 2.28

Question 15

Based on historical performance from 1900-2010,the U.S.equity risk premium was approximately

Accepted Answer

A) 6.1 percent. 
B) 5.4 percent. 
C) 7.2 percent. 
D) 9.0 percent. 
E) 8.3 percent. 
A) 6.1 percent. 
B) 5.4 percent. 
C) 7.2 percent. 
D) 9.0 percent. 
E) 8.3 percent.

Question 16

Which one of these statements correctly reflects historical history for the period 1926-2015?

Accepted Answer

A) U.S.Treasury bills had a negative rate of return during the Great Depression. 
B) The rate of return in any given year is a good estimate of the rate of return for the following year. 
C) For large-company stocks,both the worst and best annual rate of return occurred during the period 1930-35. 
D) The annual rate of return on U.S.Treasury bills never exceeded 8 percent. 
E) The maximum annual rate of return on large-company stocks was 33 percent. 
A) U.S.Treasury bills had a negative rate of return during the Great Depression. 
B) The rate of return in any given year is a good estimate of the rate of return for the following year. 
C) For large-company stocks,both the worst and best annual rate of return occurred during the period 1930-35. 
D) The annual rate of return on U.S.Treasury bills never exceeded 8 percent. 
E) The maximum annual rate of return on large-company stocks was 33 percent.

Question 17

A stock had returns of 13 percent,8 percent,1 percent,and −9 percent annually for the past 4 years.What is the mean and standard deviation of these returns?

Accepted Answer

A) 4.33%; 9.54% 
B) 4.33%; 11.08% 
C) 3.25%; 9.54% 
D) 3.25%; 13.22% 
E) 3.25%; 11.08% 
A) 4.33%; 9.54% 
B) 4.33%; 11.08% 
C) 3.25%; 9.54% 
D) 3.25%; 13.22% 
E) 3.25%; 11.08%

Question 18

One year ago,Stacey purchased 200 shares of IXC stock at a price of $42.68 per share.The stock pays an annual dividend of $1.06 per share.Today,she sold all of her shares for $37.43 per share.What is her total dollar return on this investment?

Accepted Answer

A) −$703 
B) −$838 
C) $1,022 
D) $1,262 
E) −$1,050 
A) −$703 
B) −$838 
C) $1,022 
D) $1,262 
E) −$1,050

Question 19

The geometric average is probably best applied to ________ performance.

Accepted Answer

A) past 
B) future 
C) both past and future 
D) neither past nor future 
E) estimated 
A) past 
B) future 
C) both past and future 
D) neither past nor future 
E) estimated

Question 20

This morning,you purchased one share of stock for $26.The stock pays $.32 per share each quarter as a dividend.What must the stock price be 1 year from now if you want to earn a total return of 16 percent for the year?

Accepted Answer

A) $29.84 
B) $28.88 
C) $25.01 
D) $27.12 
E) $27.46 
A) $29.84 
B) $28.88 
C) $25.01 
D) $27.12 
E) $27.46

Exam 10: Risk and Return: Lessons From Market History

What are the arithmetic and geometric average returns for a stock with annual returns of 14.9 percent,14.6 percent,−2.8 percent,and 9.7 percent?

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the

How did long-term U.S.Treasury bonds perform in 2008?

Winter's just declared an increase in its annual dividend from $.82 a share to $.85 a share.If the stock price should remain constant,then

Which one of these countries had the highest average stock market risk premium for the period 1900 to 2010?

Based on the period 1926 to 2015,which category of securities has outperformed all of the other categories?

As of 2015,the United States represents about ________ percent of the total world stock market capitalization.

A stock had returns of 7 percent,7 percent,7 percent,and 7 percent annually over the past 4 years.What is the geometric average return for this time period?

What lesson can be learned from the 2008 market decline?

Deltona stock sold for $52.84 a share 1 year ago and pays an annual dividend of $3.20.What does the stock price need to be today for the annual capital gain to be 6.8 percent?

The higher the Sharpe ratio,the

On average,for the period 1926 to 2015

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 to 2015?

Suppose you own a risky asset with an expected return of 18.2 percent and a standard deviation of 27.2 percent.If the returns are normally distributed,the approximate probability of losing 9 percent or more in a single year is ________ percent.

Based on historical performance from 1900-2010,the U.S.equity risk premium was approximately

Which one of these statements correctly reflects historical history for the period 1926-2015?

A stock had returns of 13 percent,8 percent,1 percent,and −9 percent annually for the past 4 years.What is the mean and standard deviation of these returns?

One year ago,Stacey purchased 200 shares of IXC stock at a price of $42.68 per share.The stock pays an annual dividend of $1.06 per share.Today,she sold all of her shares for $37.43 per share.What is her total dollar return on this investment?

The geometric average is probably best applied to ________ performance.

This morning,you purchased one share of stock for $26.The stock pays $.32 per share each quarter as a dividend.What must the stock price be 1 year from now if you want to earn a total return of 16 percent for the year?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

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