Question 1

Which one of the following statements is correct based on the historical record for the period 1926-2010?

Accepted Answer

A) The standard deviation of returns for small-company stocks was double that of large-company stocks. 
B) U.S. Treasury bills had a zero standard deviation of returns because they are considered to be risk-free. 
C) Long-term government bonds had a lower return but a higher standard deviation on average than did long-term corporate bonds. 
D) Inflation was less volatile than the returns on U.S. Treasury bills. 
E) Long-term government bonds underperformed intermediate-term government bonds. 
A) The standard deviation of returns for small-company stocks was double that of large-company stocks. 
B) U.S. Treasury bills had a zero standard deviation of returns because they are considered to be risk-free. 
C) Long-term government bonds had a lower return but a higher standard deviation on average than did long-term corporate bonds. 
D) Inflation was less volatile than the returns on U.S. Treasury bills. 
E) Long-term government bonds underperformed intermediate-term government bonds. C

Question 2

West Wind Tours stock is currently selling for $48 a share.The stock has a dividend yield of 3.2 percent.How much dividend income will you receive per year if you purchase 200 shares of this stock?

Accepted Answer

A) $24.96 
B) $36.20 
C) $424.80 
D) $362.00 
E) $307.20 
A) $24.96 
B) $36.20 
C) $424.80 
D) $362.00 
E) $307.20 E

Question 3

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

Accepted Answer

A) arithmetic nominal return 
B) geometric real return 
C) normal distribution 
D) variance 
E) risk premium 
A) arithmetic nominal return 
B) geometric real return 
C) normal distribution 
D) variance 
E) risk premium C

Question 4

If you excel in analyzing the future outlook of firms,you would prefer the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Accepted Answer

A) weak 
B) semiweak 
C) semistrong 
D) strong 
E) perfect 
A) weak 
B) semiweak 
C) semistrong 
D) strong 
E) perfect

Question 5

Over a 30-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 percent.Using Blume's formula,what is your best estimate of the future annual returns over the next 5 years?

Accepted Answer

A) 11.18 percent 
B) 12.27 percent 
C) 11.84 percent 
D) 12.66 percent 
E) 12.46 percent 
A) 11.18 percent 
B) 12.27 percent 
C) 11.84 percent 
D) 12.66 percent 
E) 12.46 percent

Question 6

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Accepted Answer

A) 1.68 percent 
B) 1.72 percent 
C) 1.83 percent 
D) 1.13 percent 
E) 1.21 percent 
A) 1.68 percent 
B) 1.72 percent 
C) 1.83 percent 
D) 1.13 percent 
E) 1.21 percent

Question 7

Over the past five years,a stock produced returns of 11 percent,14 percent,4 percent,-9 percent,and 5 percent.What is the probability that an investor in this stock will not lose more than 10 percent in any one given year?

Accepted Answer

A) greater than 0.5 but less than 1.0 percent 
B) greater than 1.0 percent but less than 2.5 percent 
C) greater than 2.5 percent but less than 16 percent 
D) greater than 84 percent but less than 97.5 percent 
E) greater than 95 percent 
A) greater than 0.5 but less than 1.0 percent 
B) greater than 1.0 percent but less than 2.5 percent 
C) greater than 2.5 percent but less than 16 percent 
D) greater than 84 percent but less than 97.5 percent 
E) greater than 95 percent

Question 8

Six months ago,you purchased 100 shares of stock in Global Trading at a price of $38.70 a share.The stock pays a quarterly dividend of $0.15 a share.Today,you sold all of your shares for $40.10 per share.What is the total amount of your dividend income on this investment?

Accepted Answer

A) $15 
B) $30 
C) $45 
D) $50 
E) $60 
A) $15 
B) $30 
C) $45 
D) $50 
E) $60

Question 9

Over the past fifteen years,the common stock of The Flower Shoppe,Inc.has produced an arithmetic average return of 12.2 percent and a geometric average return of 11.5 percent.What is the projected return on this stock for the next five years according to Blume's formula?

Accepted Answer

A) 11.70 percent 
B) 11.89 percent 
C) 12.00 percent 
D) 12.03 percent 
E) 12.12 percent 
A) 11.70 percent 
B) 11.89 percent 
C) 12.00 percent 
D) 12.03 percent 
E) 12.12 percent

Question 10

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

Accepted Answer

A) U.S. Treasury bills 
B) large company stocks 
C) small company stocks 
D) long-term corporate bonds 
E) long-term government bonds 
A) U.S. Treasury bills 
B) large company stocks 
C) small company stocks 
D) long-term corporate bonds 
E) long-term government bonds

Question 11

Which one of the following was the least volatile over the period of 1926-2010?

Accepted Answer

A) large-company stocks 
B) inflation 
C) long-term corporate bonds 
D) U.S. Treasury bills 
E) intermediate-term government bonds 
A) large-company stocks 
B) inflation 
C) long-term corporate bonds 
D) U.S. Treasury bills 
E) intermediate-term government bonds

Question 12

Based on past 23 years,Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Accepted Answer

A) 8.70 percent 
B) 8.92 percent 
C) 9.13 percent 
D) 9.38 percent 
E) 10.24 percent 
A) 8.70 percent 
B) 8.92 percent 
C) 9.13 percent 
D) 9.38 percent 
E) 10.24 percent

Question 13

According to theory,studying historical stock price movements to identify mispriced stocks:

Accepted Answer

A) is effective as long as the market is only semistrong form efficient. 
B) is effective provided the market is only weak form efficient. 
C) is ineffective even when the market is only weak form efficient. 
D) becomes ineffective as soon as the market gains semistrong form efficiency. 
E) is ineffective only in strong form efficient markets. 
A) is effective as long as the market is only semistrong form efficient. 
B) is effective provided the market is only weak form efficient. 
C) is ineffective even when the market is only weak form efficient. 
D) becomes ineffective as soon as the market gains semistrong form efficiency. 
E) is ineffective only in strong form efficient markets.

Question 14

A stock has an expected rate of return of 13 percent and a standard deviation of 21 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?

Accepted Answer

A) 0.1 percent 
B) 0.5 percent 
C) 1.0 percent 
D) 2.5 percent 
E) 5.0 percent 
A) 0.1 percent 
B) 0.5 percent 
C) 1.0 percent 
D) 2.5 percent 
E) 5.0 percent

Question 15

One year ago,you purchased a stock at a price of $47.50 a share.Today,you sold the stock and realized a total loss of 22.11 percent.Your capital gain was -$12.70 a share.What was your dividend yield?

Accepted Answer

A) 4.63 percent 
B) 4.88 percent 
C) 5.02 percent 
D) 12.67 percent 
E) 14.38 percent 
A) 4.63 percent 
B) 4.88 percent 
C) 5.02 percent 
D) 12.67 percent 
E) 14.38 percent

Question 16

The common stock of Air United,Inc.,had annual returns of 15.6 percent,2.4 percent,-11.8 percent,and 32.9 percent over the last four years,respectively.What is the standard deviation of these returns?

Accepted Answer

A) 13.29 percent 
B) 14.14 percent 
C) 16.50 percent 
D) 17.78 percent 
E) 19.05 percent 
A) 13.29 percent 
B) 14.14 percent 
C) 16.50 percent 
D) 17.78 percent 
E) 19.05 percent

Question 17

The U.S.Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits.Given this,you would be most apt to argue that the markets are less than _____ form efficient.

Accepted Answer

A) weak 
B) semiweak 
C) semistrong 
D) strong 
E) perfect 
A) weak 
B) semiweak 
C) semistrong 
D) strong 
E) perfect

Question 18

A stock had the following prices and dividends.What is the geometric average return on this stock?

Accepted Answer

A) -15.87 percent 
B) -13.71 percent 
C) -13.33 percent 
D) -12.91 percent 
E) -11.48 percent 
A) -15.87 percent 
B) -13.71 percent 
C) -13.33 percent 
D) -12.91 percent 
E) -11.48 percent

Question 19

Which of the following correspond to a wide frequency distribution?
I.relatively low risk
II.relatively low rate of return
III.relatively high standard deviation
IV.relatively large risk premium

Accepted Answer

A) II only 
B) III only 
C) I and II only 
D) II and III only 
E) III and IV only 
A) II only 
B) III only 
C) I and II only 
D) II and III only 
E) III and IV only

Question 20

Individuals who continually monitor the financial markets seeking mispriced securities:

Accepted Answer

A) earn excess profits over the long-term. 
B) make the markets increasingly more efficient. 
C) are never able to find a security that is temporarily mispriced. 
D) are overwhelmingly successful in earning abnormal profits. 
E) are always quite successful using only historical price information as their basis of evaluation. 
A) earn excess profits over the long-term. 
B) make the markets increasingly more efficient. 
C) are never able to find a security that is temporarily mispriced. 
D) are overwhelmingly successful in earning abnormal profits. 
E) are always quite successful using only historical price information as their basis of evaluation.

Exam 12: Some Lessons From Capital Market History

Which one of the following statements is correct based on the historical record for the period 1926-2010?

West Wind Tours stock is currently selling for $48 a share.The stock has a dividend yield of 3.2 percent.How much dividend income will you receive per year if you purchase 200 shares of this stock?

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

If you excel in analyzing the future outlook of firms,you would prefer the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Over a 30-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 percent.Using Blume's formula,what is your best estimate of the future annual returns over the next 5 years?

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Over the past five years,a stock produced returns of 11 percent,14 percent,4 percent,-9 percent,and 5 percent.What is the probability that an investor in this stock will not lose more than 10 percent in any one given year?

Six months ago,you purchased 100 shares of stock in Global Trading at a price of $38.70 a share.The stock pays a quarterly dividend of $0.15 a share.Today,you sold all of your shares for $40.10 per share.What is the total amount of your dividend income on this investment?

Over the past fifteen years,the common stock of The Flower Shoppe,Inc.has produced an arithmetic average return of 12.2 percent and a geometric average return of 11.5 percent.What is the projected return on this stock for the next five years according to Blume's formula?

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

Which one of the following was the least volatile over the period of 1926-2010?

Based on past 23 years,Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

According to theory,studying historical stock price movements to identify mispriced stocks:

A stock has an expected rate of return of 13 percent and a standard deviation of 21 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?

One year ago,you purchased a stock at a price of $47.50 a share.Today,you sold the stock and realized a total loss of 22.11 percent.Your capital gain was -$12.70 a share.What was your dividend yield?

The common stock of Air United,Inc.,had annual returns of 15.6 percent,2.4 percent,-11.8 percent,and 32.9 percent over the last four years,respectively.What is the standard deviation of these returns?

The U.S.Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits.Given this,you would be most apt to argue that the markets are less than _____ form efficient.

A stock had the following prices and dividends.What is the geometric average return on this stock?

Which of the following correspond to a wide frequency distribution? I.relatively low risk II.relatively low rate of return III.relatively high standard deviation IV.relatively large risk premium

Individuals who continually monitor the financial markets seeking mispriced securities:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

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