question

You just sold 300 shares of stock at a price of $42.06 a share. You purchased the stock for $39.80 a share and have received total dividends of $1,272. What is the total capital gain on this investment?
-$720
-(-$672)
-$678
-(-$618)
-$618

answer

$678
Capital gain = ($42.06-39.80) *300 = $678

question

Which one of the following correctly describes the dividend yield?
-Next year's annual dividend divided by this year's annual dividend.
-The increase in next year's dividend over this year's dividend divided by this year's dividend.
-This year's annual dividend divided by next year's expected stock price.
-Next year's annual dividend divided by today's stock price.
-This year's annual dividend divided by today's stock price.

answer

Next year's annual dividend divided by today's stock price.

question

Which one of the following categories of securities had the most volatile annual returns over the period 1926-2013?
-Small-company stocks
-U.S. Treasury bills
-Large-company stocks
-Intermediate-term government bonds
-Long-term corporate bonds

answer

Small-company stocks

question

Inside information has the least value when financial markets are:
-Semi weak form efficient.
-Inefficient.
-Strong form efficient.
-Semi strong form efficient.
-Weak form efficient.

answer

Strong form efficient.

question

Which one of the following earned the highest risk premium over the period 1926-2013?
-Large-company stocks
-Small-company stocks
-Long-term government bonds
-Long-term corporate bonds
-U.S. Treasury bills

answer

Small-company stocks

question

One year ago, you purchased a stock at a price of $32.15. The stock pays quarterly dividends of $.20 per share. Today, the stock is selling for $33.09 per share. What is your capital gain on this investment?
$.94
$1.24
$1.04
$.74
$1.14

answer

$.94
Capital gain = $33.09-32.15 = $.94

question

Last year, you purchased 500 shares of Analog stock for $11.16 a share. You have received a total of $120 in dividends and $7,190 from selling the shares. What is your capital gains yield on this stock?
-28.85 percent
-29.13 percent
-31.02 percent
-26.73 percent
-26.70 percent

answer

28.85 percent
Capital gains yield = [($7,190/500) - $11.16]/$11.16 = .2885, or 28.85 percent

question

Over the past four years a stock had prices of $15.40, $15.85, $16.30, and $15.70, respectively. The stock pays an annual dividend of $.50 a share. What is the geometric average return on this stock?
-2.91 percent
-3.80 percent
-3.33 percent
-5.87 percent
-1.48 percent

answer

3.80 percent
Return for year 2 = ($15.85-15.40 + .50)/$15.40 = .06169
Return for year 3 = ($16.30 - 15.85 + .50)/$15.85 = .05994
Return for year 4 = ($15.70 - 16.30 + .50)/$16.30 = -.00613
Geometric return = (1.06169 Ã—1.05994 Ã—.99387)1/3 - 1 = .0380, or 3.80 percent

question

Which one of the following is a correct ranking of securities based on the volatility of their annual returns over the period of 1926-2013? Rank from highest to lowest.
-Small-company stocks, long-term corporate bonds, large-company stocks
-Large-company stocks, U.S. Treasury bills, long-term government bonds
-Intermediate-term government bonds, long-term corporate bonds, U.S. Treasury bills
-Long-term government bonds, long-term corporate bonds, intermediate-term government bonds
-Large-company stocks, small-company stocks, long-term government bonds

answer

Long-term government bonds, long-term corporate bonds, intermediate-term government bonds

question

Which one of the following statements related to market efficiency tends to be supported by current evidence?
-Markets are most likely only weak-form efficient.
-Markets tend to respond quickly to new information.
-It is easy for investors to earn abnormal returns.
-Short-run price movements are easy to predict.
-Mispriced stocks are easy to identify.

answer

Markets tend to respond quickly to new information.

question

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.
-Strong
-Weak
-Semi strong
-Perfect
-Semi weak

answer

Semi strong

question

Stacy purchased a stock last year and sold it today for $3 a share more than her purchase price. She received a total of $.75 in dividends. Which one of the following statements is correct in relation to this investment?
-The dividend yield is greater than the capital gains yield.
-The dividend yield is expressed as a percentage of the selling price.
-The total dollar return per share is $3.
-The capital gain would have been less had Stacy not received the dividends.
-The capital gains yield is positive.

answer

The capital gains yield is positive.

question

Which one of the following is defined by its mean and its standard deviation?
-Geometric real return
-Normal distribution
-Risk premium
-Arithmetic nominal return
-Variance

answer

Normal distribution

question

A stock had annual returns of 6 percent, 13 percent, 11 percent, -8 percent, and 3 percent for the past five years, respectively. What is the standard deviation of returns for this stock?
-10.79 percent
-6.48 percent
-14.42 percent
-8.28 percent
-12.60 percent

answer

8.28 percent
Average return = (.06 + .13 + .11 - .08 + .03)/5 = .05
Standard deviation = âˆš[1/(5 - 1)] [(.06 - .05)^2 + (.13 - .05)^2 +(.11 - .05)^2 +(-.08 - .05)^2 + (.03 - .05)^2] =.0828, or 8.28 percent

question

The common stock of Air United had annual returns of 13.7 percent, 4.8 percent, -6.7 percent, and 27.9 percent over the last four years, respectively. What is the standard deviation of these returns?
-16.50 percent
-17.78 percent
-14.61 percent
-14.14 percent
-13.29 percent

answer

14.61 percent
Average return = (.137 + .048 - .067 + .279)/4 = .09925, or 9.925 percent
Ïƒ = âˆš[1/(4 - 1)] [(.137 - .09925)^2 + (.048 - .09925)^2 + (-.067 - .09925)^2 + (.279 - .09925)^2] = .1461, or 14.61 percent

question

Standard deviation is a measure of which one of the following?
-Average rate of return
-Risk premium
-Volatility
-Probability
-Real returns

answer

Volatility

question

Leo purchased a stock for $47.10 a share, received a $1.74 dividend per share and sold the shares for $50.10 a share. During the time he owned the stock, inflation averaged 3.1 percent. What is his approximate real rate of return on this investment?
-10.06 percent
-7.18 percent
-9.69 percent
-6.96 percent
-6.30 percent

answer

6.96 percent
Nominal return = ($50.10 - 47.10 + 1.74)/$47.10 = .1006, or 10.06 percent
Approximate real return = .1006 - .031 = .0696, or 6.96 percent

question

The excess return is computed as the:
-Return on a security minus the inflation rate.
-Risk-free rate minus the inflation rate.
-Return on a risky security minus the risk-free rate.
-Risk premium on a risky security minus the risk-free rate.
-Risk-free rate plus the inflation rate.

answer

Return on a risky security minus the risk-free rate.

question

To convince investors to accept greater volatility, you must:
-Decrease the real return.
-Decrease the risk-free rate.
-Increase the risk premium.
-Decrease the risk premium.
-Increase the risk-free rate.

answer

Increase the risk premium.

question

One year ago, you purchased 400 shares of SL Industries stock at a price of $26.15a share. The stock pays an annual dividend of $1.34 per share. Today, you sold all of your shares for $28.20 per share. What is your total dollar return on this investment?
-$1,356
-$1,212
-$536
-$1,528
-$820

answer

$1,356
Total dollar return = ($28.20 - 26.15 + 1.34) ï¿½400 = $1,356

question

Assume the returns from an asset are normally distributed. The average annual return for the asset is 18.1 percent and the standard deviation of the returns is 32.5 percent. What is the approximate probability that your money will triple in value in a single year?
-Less than 5 percent but greater than 2.5 percent.
-Less than 2.5 percent but greater than 1 percent.
-Less than 10 percent but greater than 5 percent.
-Less than .5 percent.
-Less than 1 percent but greater than .5 percent.

answer

Less than .5 percent
The upper tail of the 99 percent range = .181 + (3 Ã—.325) = 1.156 = 115.6
percent, which is less than the 200 percent required to triple your money. Thus, the probability of occurrence is less than .5 percent.

question

Which of the following statements are true based on the historical record for 1926-2013?
-Bonds are generally a safer investment than are stocks.
-Returns are more predictable over the short term than they are over the long term.
-Risk-free securities produce a positive real rate of return each year.
-The normal distribution curve for large-company stocks is narrower than the curve for small-company stocks.
-Risk and potential reward are inversely related.

answer

Bonds are generally a safer investment than are stocks.

question

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?
-.01684
-.02633
-.01725
-.02070
-.01972

answer

.01972
Average = (.02 - .12 + .16 + .22 + .18)/5 = .092
Variance = [1/(5 - 1)] [(.02 - .092)^2 + (-.12 - .092)^2 + (.16 - .092)^2 + (.22 - .092)^2 + (.18 - .092)^2] = .01972

question

What is the amount of the risk premium on a U.S. Treasury bill if the risk-free rate is 2.8 percent and the market rate of return is 8.35 percent?
-5.55 percent
-11.15 percent
-8.35 percent
-2.80 percent
-0 percent

answer

0 percent
There is no excess return, or risk premium, for a risk-free security such as the T-bill.

question

Which one of the following statements is correct concerning market efficiency?
-Real asset markets are more efficient than financial markets.
-New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock if the market is efficient.
-If a market is efficient, arbitrage opportunities should be common.
-In an efficient market, some market participants will have an advantage over others.
-A firm will generally receive a fair price when it issues new shares of stock if the market is efficient.

answer

A firm will generally receive a fair price when it issues new shares of stock if the market is efficient.

question

A stock has annual returns of 5.4 percent, 12.9 percent, -3.8 percent, and 9.4 percent for the past four years. The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.
-6.33; 6.11
-5.98; 6.11
-5.98; 5.79
-4.57; 4.75
-6.33; 6.33

answer

5.98; 5.79
Arithmetic average = (.054 + .129 - .038+ .094)/4 = .0598, or 5.98 percent
Geometric return = (1.054 Ã—1.129 Ã—.962 Ã—1.094).25 - 1 = .0579. or 5.79 percent

question

A stock had returns of 16 percent, 4 percent, 8 percent, 14 percent, -9 percent, and -5 percent over the past six years. What is the geometric average return for this time period?
-5.39 percent
-4.26 percent
-5.60 percent
-5.13 percent
-4.67 percent

answer

4.26 percent
Geometric average = (1.16 ï¿½1.04 ï¿½1.08 ï¿½1.14 ï¿½.91 ï¿½.95)1/6 - 1 = .0426, or 4.26 percent

question

The real rate of return on a stock is approximately equal to the nominal rate of return:
-Divided by (1 - inflation rate).
-Divided by (1 + inflation rate).
-Multiplied by (1 + inflation rate).
-Plus the inflation rate.
-Minus the inflation rate.

answer

Minus the inflation rate.

question

A stock had returns of 12 percent, 16 percent, 10 percent, 19 percent, 15 percent, and -6 percent over the last six years. What is the geometric average return on the stock for this period?
-10.68 percent
-15.01 percent
-13.56 percent
-14.76 percent
-10.90 percent

answer

10.68 percent
Geometric average = (1.12 ï¿½1.16 ï¿½1.10 ï¿½1.19 ï¿½1.15 ï¿½.94)1/6 - 1 = .1068, or 10.68 percent

question

Christina purchased 200 shares of stock at a price of $62.30 a share and sold them for $70.25 a share. She also received $148 in dividends. If the inflation rate was 4.2 percent, What was her approximate real rate of return on this investment?
-18.15 percent
-13.95 percent
-9.75 percent
-24.20 percent
-14.20 percent

answer

9.75 percent
Nominal return = [$70.25 - 62.30 + ($148 /200)]/$62.30 = .1395, or 13.95 percent
Approximate real return = 13.95 percent - 4.2 percent = 9.75 percent

question

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 6 percent, -14 percent, 12 percent, 9 percent, and 11 percent. Suppose the average inflation rate over this time period was 2.8 percent and the average T-bill rate was 3.2 percent. Based on this information, what was the average nominal risk premium?
-2.00 percent
-(-1.2 percent)
-2.01 percent
-(-1.29 percent)
-1.60 percent

answer

1.60 percent
Average return = (.06 - .14 + .12 + .09 + .11)/5= .048, or 4.8 percent
Average nominal risk premium = .048 - .032 = .016, or 1.60 percent

question

Which one of the following had the least volatile annual returns over the period of 1926-2013?
-Inflation
-Intermediate-term government bonds
-Long-term corporate bonds
-Large-company stocks
-U.S. Treasury bills

answer

U.S. Treasury Bills

question

Which one of the following statements related to capital gains is correct?
-The capital gains yield represents the total return earned by an investor.
-The capital gains yield includes only realized capital gains.
-The capital gains yield is expressed as a percentage of a security's total return.
-The capital gains yield must be either positive or zero.
-An increase in an unrealized capital gain will increase the capital gains yield.

answer

An increase in an unrealized capital gain will increase the capital gains yield.

question

Today, you sold 300 shares of stock and realized a total return of 5.2 percent. You purchased the shares one year ago at a price of $28 a share and have received a total of $96 in dividends. What is your capital gains yield on this investment?
-5.67 percent
-3.68 percent
-7.41 percent
-4.06 percent
-7.26 percent

answer

4.06 percent
Capital gains yield = .052 - [($96/300)/$28] = .0406, or 4.06 percent

question

The return earned in an average year over a multiyear period is called the _____ average return.
-Geometric
-Standard
-Variant
-Arithmetic
-Real

answer

Arithmetic

question

The average compound return earned per year over a multiyear period is called the _____ average return.
-Real
-Geometric
-Arithmetic
-Variant
-Standard

answer

Geometric

question

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?
-Blume's market
-Zero volatility market
-Efficient capital market
-Evenly distributed market
-Riskless market

answer

Efficient capital market

question

Which one of the following statements best defines the efficient market hypothesis?
-Security prices in efficient markets remain steady as new information becomes available.
-Efficient markets limit competition.
-Profits are removed as a market incentive when markets become efficient.
-All securities in an efficient market are zero net present value investments.
-Mispriced securities are common in efficient markets.

answer

Security prices in efficient markets remain steady as new information becomes available.

question

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?
-$36.20
-$24.96
-$424.80
-$362.00
-$307.20

answer

$307.20
Dividend income = $48 *.032 *200 = $307.20

question

You own 1,200 shares of Western Feed Mills stock valued at $46.80 per share. What is the dividend yield if your annual dividend income is $1,644?
-2.68 percent
-1.83 percent
-2.93 percent
-2.13 percent
-1.37 percent

answer

2.93 percent
Dividend yield = ($1,644/1,200)/$46.80 = .0293, or 2.93 percent

question

A stock had returns of 6 percent, -22 percent, 18percent, 12 percent, and -2 percent over the past five years. What is the standard deviation of these returns?
-15.52 percent
-13.49 percent
-18.74 percent
-10.21 percent
-11.68 percent

answer

15.52 percent
Average return = (.06 - .22 + .18 + .12- .02)/5 = .024
Ïƒ = âˆš[1/(5 - 1)] [(.06 - .024)^2 + (-.22 - .024)^2 + (.18 -.024)^2 + (.12 - .024)^2 + (-.02 - .024)^2] = .1552, or 15.52 percent

question

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:
-Was unaffected by the announcement.
-Increased proportionately with the dividend decrease.
-Decreased by $.14 per share.
-Decreased proportionately with the dividend decrease.
-Increased by $.14 per share.

answer

Decreased proportionately with the dividend decrease.

question

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2013?
-Large company stocks
-U.S. Treasury bills
-Long-term corporate bonds
-Small company stocks
-Long-term government bonds

answer

U.S. Treasury bills

question

Which of the following yields on a stock can be negative?
-Dividend yield
-Dividend, capital gains, and total return
-Capital gains yield
-Dividend yield and total return
-Capital gains yield and total return

answer

Capital gains yield and total return

question

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?
-10.44 percent
-8.75 percent
-1.55 percent
-1.69 percent
-8.05 percent

answer

8.75 percent
Capital gains yield = ($87 - 80)/$80 = .0875, or 8.75 percent

question

A stock has annual returns of 5 percent, 21 percent, -12 percent, 7 percent, and -6 percent for the past five years. The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.
3.62; 3.89
3.89; 4.26
3.00; 2.37
3.89; 3.52
3.00; 3.28

answer

3.00; 2.37
Arithmetic average = (.05 + .21- .12 + .07 - .06)/5 =.03, or 3 percent
Geometric return = (1.05 Ã—1.21 Ã—.88 Ã—1.07 Ã—.94).20 - 1 = .0237, or 2.37 percent

question

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 $.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?
-$30
-$45
-$15
-$50
-$60

answer

$30
Dividend income = ($.15 *2) *100 = $30

question

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which one of the following terms refers to the difference between these two rates of return?
-Variance
-Standard deviation
-Arithmetic
-Geometric return
-Risk premium

answer

Risk premium

question

Individual investors who continually monitor the financial markets seeking mispriced securities:
Earn excess profits on all of their investments.
Make the markets increasingly more efficient.
Are always quite successful using only historical price information as their basis of evaluation.
Are overwhelmingly successful in earning abnormal profits.
Are never able to find a security that is temporarily mispriced.

answer

Make the markets increasingly more efficient.

question

Which one of the following is the most likely reason why a stock price might not react at all on the day that new information related to the stock's issuer is released? Assume the market is semi strong form efficient.
-Company insiders were aware of the information prior to the announcement
-Investors tend to overreact
-Investors do not pay attention to daily news
-The information was expected
-The news was positive

answer

The information was expected