Question 1

A stock has an average return of 18.2 percent and a standard deviation of 10.7 percent. In any one given year, you have a 95 percent chance that you will not lose more than _____ percent nor earn more than ____ percent if you invest in this security.

Accepted Answer

A)   -3.2 percent to 28.9 percent
B)   -3.2 percent to 39.6 percent
C)   -13.9 percent to 28.9 percent
D)   -13.9 percent to 39.6 percent
E)   -13.9 percent to 50.3 percentF) C) and E)
G) A) and B)

Question 2

The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk.

Accepted Answer

A)   lower; lower
B)   lower; higher
C)   higher; lower
D)   higher; higher
E)   You cannot determine anything about the expected rate of return from the standard deviation.F) A) and B)
G) B) and D)

Question 3

Which one of the following is the positive square root of the variance?

Accepted Answer

A)   Standard deviation
B)   Mean
C)   Risk-free rate
D)   Average return
E)   Real returnF) A) and C)
G) D) and E)

Question 4

Over the past five years, a stock returned 8.3 percent, -32.5 percent, -2.2 percent, 46.9 percent and 11.8 percent. What is the variance of these returns?

Accepted Answer

A)   0.071188
B)   0.076290
C)   0.081504
D)   0.082547
E)   0.091306F) A) and B)
G) B) and C)

Question 5

A stock has returns for five years of 23 percent, -17 percent, 8 percent, 22 percent, and 3 percent. The stock has an average return of ______ percent and a standard deviation of _____ percent.

Accepted Answer

A)   7.80; 13.54
B)   7.80; 14.63
C)   7.80; 16.36
D)   14.60; 14.63
E)   14.60; 16.36F) B) and C)
G) A) and B)

Question 6

Which one of the following could cause the total return on an investment to be a negative rate?

Accepted Answer

A)   Constant annual dividend amount
B)   Increase in the annual dividend amount
C)   Stock price that remains constant over the investment period
D)   Stock price that declines over the investment period
E)   Stock price that increases over the investment periodF) B) and D)
G) C) and D)

Question 7

Jones Footwear pays a constant annual dividend. Last year, the dividend yield was 2.8 percent when the stock was selling for $26 a share. What is the current price of the stock if the current dividend yield is 3.1 percent?

Accepted Answer

A)   $21.19
B)   $23.48
C)   $25.20
D)   $26.87
E)   $27.40F) A) and B)
G) A) and C)

Question 8

One year ago, Steven purchased 4,200 shares of KNF stock for $177,072. Today, he sold those shares for $48.10 a share. What is the capital gains yield on this investment if the dividend yield is 3.3 percent?

Accepted Answer

A)   10.79 percent
B)   11.23 percent
C)   12.29 percent
D)   14.09 percent
E)   14.53 percentF) C) and E)
G) B) and C)

Question 9

Home Grown Grains stock returned 28.7 percent, 2.6 percent, 13.1 percent, and 11.8 percent over the past four years, respectively. What is the arithmetic average return for this period?

Accepted Answer

A)   14.05 percent
B)   14.62 percent
C)   15.10 percent
D)   15.93 percent
E)   16.01 percentF) D) and E)
G) None of the above

Question 10

The standard deviation measures the _____ of a security's returns over time.

Accepted Answer

A)   average value
B)   frequency
C)   volatility
D)   mean
E)   arithmetic averageF) B) and C)
G) A) and E)

Question 11

Based on the period 1926-2008, what rate of return should you expect to earn over the long-term if you are unwilling to bear risk?

Accepted Answer

A)   Between 0 and 1 percent
B)   Between 1 and 2 percent
C)   Between 2 and 3 percent
D)   Between 3 and 4 percent
E)   Between 4 and 5 percentF) B) and C)
G) None of the above

Question 12

You find a certain stock that had returns of 14 percent, -27 percent, 19 percent, and 21 percent for four of the last five years. The average return of the stock over this period was 9.5 percent. What is the standard deviation of the stock's returns?

Accepted Answer

A)   11.67 percent
B)   12.90 percent
C)   14.14 percent
D)   18.47 percent
E)   20.59 percentF) D) and E)
G) B) and E)

Question 13

A stock has had returns of 11 percent, -8 percent, 6 percent, 21 percent, 24 percent, and 16 percent over the last six years. What is the geometric return for this stock?

Accepted Answer

A)   10.82 percent
B)   11.13 percent
C)   11.31 percent
D)   11.42 percent
E)   11.47 percentF) C) and D)
G) A) and E)

Question 14

A security produced returns of 13 percent, 18 percent, 9 percent, 23 percent, and -17 percent over the past five years, respectively. Based on these five years, what is the probability that this stock will earn more than 24.76 percent in any one given year?

Accepted Answer

A)   0.5 percent
B)   1.0 percent
C)   2.5 percent
D)   5.0 percent
E)   16.0 percentF) A) and C)
G) B) and D)

Question 15

One year ago, Neal purchased 3,600 shares of Franklin stock for $101,124. Today, he sold those shares for $26.60 a share. What is the total return on this investment if the dividend yield is 1.7 percent?

Accepted Answer

A)   -4.21 percent
B)   -3.60 percent
C)   -2.29 percent
D)   1.10 percent
E)   2.42 percentF) D) and E)
G) A) and D)

Question 16

Which one of the following statements is true regarding the period 1926-2008?

Accepted Answer

A)   The returns on small-company stocks were less volatile than the returns on large-company stocks.
B)   The risk-free rate of return remained constant over the time period.
C)   U.S. Treasury bills had a positive average real rate of return.
D)   Bonds had an average rate of return that exceeded the average return on stocks.
E)   The inflation rate was just as volatile as the return on long-term bonds.F) A) and C)
G) A) and E)

Question 17

One year ago, you purchased 400 shares of stock for $12 a share. The stock pays $0.22 a share in dividends each year. Today, you sold your shares for $28.30 a share. What is your total dollar return on this investment?

Accepted Answer

A)   $6,222
B)   $6,432
C)   $6,520
D)   $6,220
E)   $6,608F) D) and E)
G) C) and D)

Question 18

One year ago, you bought a stock for $36.48 a share. You received a dividend of $1.62 per share last month and sold the stock today for $40.18 a share. What is the capital gains yield on this investment?

Accepted Answer

A)   2.86 percent
B)   3.70 percent
C)   10.14 percent
D)   12.29 percent
E)   14.58 percentF) A) and B)
G) C) and D)

Question 19

Assume the securities markets are strong-form efficient. Given this assumption, you should expect which one of the following to occur?

Accepted Answer

A)   The risk premium on any security in that market will be zero.
B)   The price of any one security in that market will remain constant at its current level.
C)   Each security in the market will have an annual rate of return equal to the risk-free rate.
D)   The price of each security in that market will frequently fluctuate.
E)   The prices of each security will fall to zero because the net present value of the investments will be zero.F) A) and E)
G) C) and D)

Question 20

A stock produced returns of 19 percent, 27 percent, and -38 percent over three of the past four years. The arithmetic average for the past four years is 7 percent. What is the standard deviation of the stock's returns for the 4-year period?

Accepted Answer

A)   11.63 percent
B)   15.94 percent
C)   19.70 percent
D)   26.25 percent
E)   30.21 percentF) C) and E)
G) B) and E)

Exam 10: Some Lessons From Capital Market History

You find a certain stock that had returns of 14 percent, -27 percent, 19 percent, and 21 percent for four of the last five years. The average return of the stock over this period was 9.5 percent. What is the standard deviation of the stock's returns?

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Home Grown Grains stock returned 28.7 percent, 2.6 percent, 13.1 percent, and 11.8 percent over the past four years, respectively. What is the arithmetic average return for this period?

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Which one of the following statements is true regarding the period 1926-2008?

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One year ago, Steven purchased 4,200 shares of KNF stock for $177,072. Today, he sold those shares for $48.10 a share. What is the capital gains yield on this investment if the dividend yield is 3.3 percent?

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Over the past five years, a stock returned 8.3 percent, -32.5 percent, -2.2 percent, 46.9 percent and 11.8 percent. What is the variance of these returns?

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Jones Footwear pays a constant annual dividend. Last year, the dividend yield was 2.8 percent when the stock was selling for $26 a share. What is the current price of the stock if the current dividend yield is 3.1 percent?

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A stock has had returns of 11 percent, -8 percent, 6 percent, 21 percent, 24 percent, and 16 percent over the last six years. What is the geometric return for this stock?

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A security produced returns of 13 percent, 18 percent, 9 percent, 23 percent, and -17 percent over the past five years, respectively. Based on these five years, what is the probability that this stock will earn more than 24.76 percent in any one given year?

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One year ago, Neal purchased 3,600 shares of Franklin stock for $101,124. Today, he sold those shares for $26.60 a share. What is the total return on this investment if the dividend yield is 1.7 percent?

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A stock has an average return of 18.2 percent and a standard deviation of 10.7 percent. In any one given year, you have a 95 percent chance that you will not lose more than _____ percent nor earn more than ____ percent if you invest in this security.

Correct AnswerverifiedShow Answer

A stock has returns for five years of 23 percent, -17 percent, 8 percent, 22 percent, and 3 percent. The stock has an average return of ______ percent and a standard deviation of _____ percent.

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One year ago, you purchased 400 shares of stock for $12 a share. The stock pays $0.22 a share in dividends each year. Today, you sold your shares for $28.30 a share. What is your total dollar return on this investment?

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A stock produced returns of 19 percent, 27 percent, and -38 percent over three of the past four years. The arithmetic average for the past four years is 7 percent. What is the standard deviation of the stock's returns for the 4-year period?

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The standard deviation measures the _____ of a security's returns over time.

Correct AnswerverifiedShow Answer

Assume the securities markets are strong-form efficient. Given this assumption, you should expect which one of the following to occur?

Correct AnswerverifiedShow Answer

Based on the period 1926-2008, what rate of return should you expect to earn over the long-term if you are unwilling to bear risk?

Correct AnswerverifiedShow Answer

Which one of the following could cause the total return on an investment to be a negative rate?

Correct AnswerverifiedShow Answer

The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk.

Correct AnswerverifiedShow Answer

One year ago, you bought a stock for $36.48 a share. You received a dividend of $1.62 per share last month and sold the stock today for $40.18 a share. What is the capital gains yield on this investment?

Correct AnswerverifiedShow Answer

Which one of the following is the positive square root of the variance?

Correct AnswerverifiedShow Answer

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A stock has an average return of 18.2 percent and a standard deviation of 10.7 percent. In any one given year, you have a 95 percent chance that you will not lose more than _ percent nor earn more than percent if you invest in this security.

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A stock has returns for five years of 23 percent, -17 percent, 8 percent, 22 percent, and 3 percent. The stock has an average return of __ percent and a standard deviation of _ percent.

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The lower the standard deviation of returns on a security, the _ the expected rate of return and the _ the risk.

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