Question 1

According to Jeremy Siegel,the real return on stocks over the long-term has averaged about:

Accepted Answer

A) 6.7 percent 
B) 8.7 percent 
C) 10.4 percent 
D) 12.3 percent 
E) 14.8 percent 
A) 6.7 percent 
B) 8.7 percent 
C) 10.4 percent 
D) 12.3 percent 
E) 14.8 percent

Question 2

What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?

Accepted Answer

A) 1.0 percent 
B) 2.5 percent 
C) 5.0 percent 
D) 16 percent 
E) 32 percent 
A) 1.0 percent 
B) 2.5 percent 
C) 5.0 percent 
D) 16 percent 
E) 32 percent

Question 3

As long as the inflation rate is positive,the real rate of return on a security will be ____ the nominal rate of return.

Accepted Answer

A) greater than 
B) equal to 
C) less than 
D) greater than or equal to 
E) unrelated to 
A) greater than 
B) equal to 
C) less than 
D) greater than or equal to 
E) unrelated to

Question 4

A stock had returns of 15 percent,8 percent,12 percent,-15 percent,and -4 percent for the past five years.Based on these returns,what is the approximate probability that this stock will return at least 20 percent in any one given year?

Accepted Answer

A) less than 0.5 percent 
B) greater than 0.5 percent but less than 1.0 percent 
C) greater than 1.0 percent but less than 2.5 percent 
D) greater than 2.5 percent but less than 16 percent 
E) greater than 16.0 percent 
A) less than 0.5 percent 
B) greater than 0.5 percent but less than 1.0 percent 
C) greater than 1.0 percent but less than 2.5 percent 
D) greater than 2.5 percent but less than 16 percent 
E) greater than 16.0 percent

Question 5

Define and explain the three forms of market efficiency.

Accepted Answer

The current stock pr

Question 6

A stock has returns of 18 percent,15 percent,-21 percent,and 6 percent for the past four years.Based on this information,what is the 95 percent probability range of returns for any one given year?

Accepted Answer

A) -13.56 to 20.56 percent 
B) -24.60 to 31.80 percent 
C) -31.00 to 40.00 percent 
D) -47.68 to 54.68 percent 
E) -71.73 to 71.73 percent 
A) -13.56 to 20.56 percent 
B) -24.60 to 31.80 percent 
C) -31.00 to 40.00 percent 
D) -47.68 to 54.68 percent 
E) -71.73 to 71.73 percent

Question 7

One year ago,you purchased 150 shares of a stock at a price of $54.18 a share.Today,you sold those shares for $40.25 a share.During the past year,you received total dividends of $182 while inflation averaged 4.2 percent.What is your approximate real rate of return on this investment?

Accepted Answer

A) -24.20 percent 
B) -27.67 percent 
C) -20.00 percent 
D) 20.00 percent 
E) 24.20 percent 
A) -24.20 percent 
B) -27.67 percent 
C) -20.00 percent 
D) 20.00 percent 
E) 24.20 percent

Question 8

What was the highest annual rate of inflation during the period 1926-2010?

Accepted Answer

A) between 0 and 3 percent 
B) between 3 and 5 percent 
C) between 5 and 10 percent 
D) between 10 and 15 percent 
E) between 15 and 20 percent 
A) between 0 and 3 percent 
B) between 3 and 5 percent 
C) between 5 and 10 percent 
D) between 10 and 15 percent 
E) between 15 and 20 percent

Question 9

Assume that you invest in a portfolio of large-company stocks.Further assume that the portfolio will earn a rate of return similar to the average return on large-company stocks for the period 1926-2010.What rate of return should you expect to earn?

Accepted Answer

A) less than 10 percent 
B) between 10 and 12.5 percent 
C) between 12.5 and 15 percent 
D) between 15 and 17.5 percent 
E) more than 17.5 percent 
A) less than 10 percent 
B) between 10 and 12.5 percent 
C) between 12.5 and 15 percent 
D) between 15 and 17.5 percent 
E) more than 17.5 percent

Question 10

If the variability of the returns on large-company stocks were to increase over the long-term,you would expect which of the following to occur as a result?
I.decrease in the average rate of return
II.increase in the risk premium
III.increase in the 68 percent probability range of the frequency distribution of returns
IV.decrease in the standard deviation

Accepted Answer

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

Question 11

A stock had returns of 11 percent,-18 percent,-21 percent,20 percent,and 34 percent over the past five years.What is the standard deviation of these returns?

Accepted Answer

A) 18.74 percent 
B) 20.21 percent 
C) 20.68 percent 
D) 24.01 percent 
E) 23.49 percent 
A) 18.74 percent 
B) 20.21 percent 
C) 20.68 percent 
D) 24.01 percent 
E) 23.49 percent

Question 12

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 2 percent,-12 percent,16 percent,22 percent,and 18 percent.What is the variance of these returns?

Accepted Answer

A) 0.02070 
B) 0.01972 
C) 0.01725 
D) 0.01684 
E) 0.02633 
A) 0.02070 
B) 0.01972 
C) 0.01725 
D) 0.01684 
E) 0.02633

Question 13

You are aware that your neighbor trades stocks based on confidential information he overhears at his workplace.This information is not available to the general public.This neighbor continually brags to you about the profits he earns on these trades.Given this,you would tend to argue that the financial markets are at best _____ 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 14

Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately.If the dividend yield remains at its pre-announcement level,then you know the stock price:

Accepted Answer

A) was unaffected by the announcement. 
B) increased proportionately with the dividend decrease. 
C) decreased proportionately with the dividend decrease. 
D) decreased by $0.14 per share. 
E) increased by $0.14 per share. 
A) was unaffected by the announcement. 
B) increased proportionately with the dividend decrease. 
C) decreased proportionately with the dividend decrease. 
D) decreased by $0.14 per share. 
E) increased by $0.14 per share.

Question 15

Which two of the following are the most likely reasons why a stock price might not react at all on the day that new information related to the stock issuer is released?
I.insiders knew the information prior to the announcement
II.investors need time to digest the information prior to reacting
III.the information has no bearing on the value of the firm
IV.the information was anticipated

Accepted Answer

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

Question 16

Which one of the following statements correctly applies to the period 1926-2010?

Accepted Answer

A) Large-company stocks earned a higher average risk premium than did small-company stocks. 
B) Intermediate-term government bonds had a higher average return than long-term corporate bonds. 
C) Large-company stocks had an average annual return of 14.7 percent. 
D) Inflation averaged 2.6 percent for the period. 
E) U.S. Treasury bills had a positive average real rate of return. 
A) Large-company stocks earned a higher average risk premium than did small-company stocks. 
B) Intermediate-term government bonds had a higher average return than long-term corporate bonds. 
C) Large-company stocks had an average annual return of 14.7 percent. 
D) Inflation averaged 2.6 percent for the period. 
E) U.S. Treasury bills had a positive average real rate of return.

Question 17

Suppose a stock had an initial price of $80 per share,paid a dividend of $1.35 per share during the year,and had an ending share price of $87.What was the capital gains yield?

Accepted Answer

A) 1.55 percent 
B) 1.69 percent 
C) 8.05 percent 
D) 8.75 percent 
E) 10.44 percent 
A) 1.55 percent 
B) 1.69 percent 
C) 8.05 percent 
D) 8.75 percent 
E) 10.44 percent

Question 18

Which one of the following statements is a correct reflection of the U.S.markets for the period 1926-2010?

Accepted Answer

A) U.S. Treasury bill returns never exceeded a 9 percent return in any one year during the period. 
B) U.S. Treasury bills provided a positive rate of return each and every year during the period. 
C) Inflation equaled or exceeded the return on U.S. Treasury bills every year during the period. 
D) Long-term government bonds outperformed U.S. Treasury bills every year during the period. 
E) National deflation occurred at least once every decade during the period. 
A) U.S. Treasury bill returns never exceeded a 9 percent return in any one year during the period. 
B) U.S. Treasury bills provided a positive rate of return each and every year during the period. 
C) Inflation equaled or exceeded the return on U.S. Treasury bills every year during the period. 
D) Long-term government bonds outperformed U.S. Treasury bills every year during the period. 
E) National deflation occurred at least once every decade during the period.

Question 19

The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2010.

Accepted Answer

A) 3 
B) 5 
C) 7 
D) 9 
E) 11 
A) 3 
B) 5 
C) 7 
D) 9 
E) 11

Question 20

What are the two primary lessons learned from capital market history?
 Use historical information to justify that these lessons are correct.

Accepted Answer

First,there is a reward for bearing risk

Exam 12: Some Lessons From Capital Market History

According to Jeremy Siegel,the real return on stocks over the long-term has averaged about:

What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?

As long as the inflation rate is positive,the real rate of return on a security will be ____ the nominal rate of return.

A stock had returns of 15 percent,8 percent,12 percent,-15 percent,and -4 percent for the past five years.Based on these returns,what is the approximate probability that this stock will return at least 20 percent in any one given year?

Define and explain the three forms of market efficiency.

A stock has returns of 18 percent,15 percent,-21 percent,and 6 percent for the past four years.Based on this information,what is the 95 percent probability range of returns for any one given year?

One year ago,you purchased 150 shares of a stock at a price of $54.18 a share.Today,you sold those shares for $40.25 a share.During the past year,you received total dividends of $182 while inflation averaged 4.2 percent.What is your approximate real rate of return on this investment?

What was the highest annual rate of inflation during the period 1926-2010?

Assume that you invest in a portfolio of large-company stocks.Further assume that the portfolio will earn a rate of return similar to the average return on large-company stocks for the period 1926-2010.What rate of return should you expect to earn?

A stock had returns of 11 percent,-18 percent,-21 percent,20 percent,and 34 percent over the past five years.What is the standard deviation of these returns?

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 2 percent,-12 percent,16 percent,22 percent,and 18 percent.What is the variance of these returns?

Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately.If the dividend yield remains at its pre-announcement level,then you know the stock price:

Which one of the following statements correctly applies to the period 1926-2010?

Suppose a stock had an initial price of $80 per share,paid a dividend of $1.35 per share during the year,and had an ending share price of $87.What was the capital gains yield?

Which one of the following statements is a correct reflection of the U.S.markets for the period 1926-2010?

The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2010.

What are the two primary lessons learned from capital market history? Use historical information to justify that these lessons are correct.

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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