Question 1

A stock has an expected rate of return of 8.3 percent and a standard deviation of 6.4 percent.Which one of the following best describes the probability that this stock will lose more than 4.50 percent in any one given year?

Accepted Answer

A) Less than 2.5 percent 
B) Less than 1.0 percent 
C) Less than 1.5 percent 
D) Less than .5 percent 
E) Less than 5 percent

Question 2

What are the arithmetic and geometric average returns (Answer in that order.)for a stock with annual returns of 4 percent,9 percent,−6 percent,and 18 percent?

Accepted Answer

A) 5.89 percent; 6.25 percent 
B) 6.25 percent; 5.89 percent 
C) 6.25 percent; 8.33 percent 
D) 8.33 percent; 5.89 percent 
E) 8.33 percent; 8.33 percent

Question 3

A portfolio of small-company common stocks,as used in this course,is best described as the stocks of the firms which:

Accepted Answer

A) represent the smallest twenty percent of the companies listed on the NYSE. 
B) have gone public within the past five years. 
C) are too small to be listed on the NYSE. 
D) are included in the S&P 500 index. 
E) trade publicly for $5 a share or less.

Question 4

A stock had returns of 12 percent,6 percent,13 percent,−11 percent,and −2 percent over the past five years.What is the geometric average return for this time period?

Accepted Answer

A) 3.60 percent 
B) 3.19 percent 
C) 3.29 percent 
D) 3.62 percent 
E) 4.40 percent

Question 5

Suppose you have $30,000 invested in the stock market and your banker comes to you and tries to get you to move that money into the bank's certificates of deposit (CDs).He explains that the CDs are 100 percent government insured and that you are taking unnecessary risks by being in the stock market.How would you respond?

Accepted Answer

The answer of Suppose you have $30,000 invested in the...

Question 6

Over the period of 1926 to 2017,the average rate of inflation was ________ percent.

Accepted Answer

A) 2.0 
B) 2.7 
C) 3.0 
D) 3.8 
E) 4.3

Question 7

The return pattern on your favorite stock has been 5.39 percent,8.26 percent,−12.04 percent,and 14.27 percent over the last four years.What are the average arithmetic and geometric rates of return?

Accepted Answer

A) 3.45 percent; 3.21 percent 
B) 3.97 percent; 3.48 percent 
C) 3.88 percent; 3.64 percent 
D) 3.92 percent; 3.56 percent 
E) 3.51 percent; 3.26 percent

Question 8

The standard deviation of small-company stocks:

Accepted Answer

A) had an average value of about 20 percent for the period 1926 to 2017. 
B) is roughly equivalent to the standard deviation on stocks of all sizes. 
C) is about ten times as large as the standard deviation of U.S.Treasury bills. 
D) is less than the standard deviation on large-company stocks. 
E) produces a narrow normal distribution curve.

Question 9

From November 2007 through January 2009,the S&P 500 Index lost approximately what percent of its value?

Accepted Answer

A) 37 
B) 51 
C) 43 
D) 33 
E) 45

Question 10

Which one of the following statements concerning the standard deviation is correct?

Accepted Answer

A) The standard deviation is a measure of total return. 
B) The higher the standard deviation,the higher the expected return. 
C) The standard deviation varies in direct relation to increases in dividend yield. 
D) The higher the standard deviation,the lower the risk. 
E) The lower the standard deviation,the less certain the rate of return in any one given year.

Question 11

One year ago,you purchased 300 shares of IXC stock at a price of $22.05 per share,received $460 in dividends over the year,and today sold all your shares for $29.32 per share.What was your dividend yield?

Accepted Answer

A) 5.23 percent 
B) 5.87 percent 
C) 6.95 percent 
D) 1.92 percent 
E) 2.48 percent

Question 12

The average compound return earned per year over a multi-year period is called the ________ average return.

Accepted Answer

A) arithmetic 
B) standard 
C) variant 
D) geometric 
E) real

Question 13

Based on historical market performance,what can we conclude about the relationship between return and risk?

Accepted Answer

The answer of Based on historical market performance,what can we...

Question 14

Which one of the following is a correct statement concerning the excess return?

Accepted Answer

A) The greater the volatility of returns,the greater the expected excess return. 
B) The lower the volatility of returns,the greater the expected excess return. 
C) The lower the average rate of return,the greater the excess return. 
D) The excess return is not correlated to the average rate of return. 
E) The excess return is not affected by the volatility of returns.

Question 15

Over the period of 1926 to 2017,small-company stocks had an average return of ________ percent.

Accepted Answer

A) 14.8 
B) 15.2 
C) 17.3 
D) 14.6 
E) 16.5

Question 16

You purchased 300 shares of stock at a price of $21.72 per share.Over the last year,you have received total dividend income of $210.What is the dividend yield?

Accepted Answer

A) 3.06 percent 
B) 3.22 percent 
C) 3.17 percent 
D) 2.92 percent 
E) 2.94 percent

Question 17

Which country has the highest Sharpe ratio based on historical equity risk premiums and standard deviations of returns for the period 1900-2010?

Accepted Answer

A) Italy 
B) Australia 
C) United States 
D) Germany 
E) Norway

Question 18

One year ago,you purchased a stock at a price of $32.50.The stock pays quarterly dividends of $.40 per share.Today,the stock is worth $34.60 per share.What is the total dollar return per share to date from this investment?

Accepted Answer

A) $3.40 
B) $3.70 
C) $2.10 
D) $2.50 
E) $3.80

Question 19

A stock had annual returns of 7.63 percent,9.28 percent,−3.11 percent,and 15.09 percent for the past four years,respectively.What is the real arithmetic average rate of return for this period if inflation averaged 2.3 percent?

Accepted Answer

A) 4.15 percent 
B) 5.24 percent 
C) 4.81 percent 
D) 5.02 percent 
E) 5.36 percent

Question 20

Of these countries,which one has the highest historical equity risk premium for the period 1900-2010?

Accepted Answer

A) Italy 
B) Ireland 
C) Switzerland 
D) Spain 
E) Norway

Exam 10: Lessons From Market History