Question 1

Home Grown Tomatoes stock returned 11.6 percent,3.2 percent,8.1 percent,14.2,and 9.8 percent over the past five years,respectively.What is the arithmetic average return for this period?

Accepted Answer

A)  9.38 percent
B)  10.62 percent
C)  8.10 percent
D)  11.93 percent
E)  10.10 percentF) A) and E)
G) C) and D)

Question 2

You've observed the following returns on Blast It Corporation's stock over the past five years: 19 percent,-23 percent,31 percent,18 percent,and -7 percent,respectively.What was the variance of the returns over this period?

Accepted Answer

A)  03598
B)  04838
C)  03692
D)  04714
E)  03781F) B) and C)
G) A) and E)

Question 3

Which answer creates a false sentence? Percentage returns:

Accepted Answer

A)  relay information about a security more easily than dollar returns do.
B)  are not affected by the amount of the investment.
C)  can be easily separated into dividend yields and capital gain yields.
D)  are easy to understand.
E)  are difficult to compute.F) A) and E)
G) A) and C)

Question 4

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) C) and D)
G) None of the above

Question 5

Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation?

Accepted Answer

A)  Arithmetic average return
B)  Variance
C)  Standard deviation
D)  Probability curve
E)  Normal distributionF) A) and B)
G) All of the above E

Question 6

Which one of the following statements is true regarding the period 1926-2014?

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 B)
G) B) and D)

Question 7

The historical record for the period 1926-2014shows that the annual nominal rate of return on:

Accepted Answer

A)  risk-free securities has averaged around 5 percent.
B)  the Consumer Price Index has been positive every year.
C)  U.S.Treasury bills have had a positive rate of return for every year in the period.
D)  U.S.Treasury bills is constant.
E)  large company stocks has averaged around 9 percent.F) None of the above
G) C) and D)

Question 8

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) B) and C)
G) A) and D)

Question 9

Based on the period 1926-2014,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) D) and E)
G) B) and E) D

Question 10

The stock of Southern United is priced at $52 a share and has a dividend yield of 3.6 percent.The firm pays constant annual dividends.What is the amount of the next dividend per share?

Accepted Answer

A)  $1.826
B)  $1.729
C)  $1.872
D)  $1.878
E)  $1.724F) B) and E)
G) A) and C)

Question 11

You purchased a zero coupon bond one year ago for $346.72.The market interest rate is now 5.75 percent.If the bond had 15 years to maturity when you originally purchased it,what is your total return to date if the face value of the bond is $1,000?

Accepted Answer

A)  30.42 percent
B)  22.18 percent
C)  16.34 percent
D)  12.65 percent
E)  24.90 percentF) A) and E)
G) C) and E)

Question 12

The variance is the average squared difference between which of the following?

Accepted Answer

A)  Actual return and average return
B)  Actual return and (average return/N - 1) 
C)  Actual return and the real return
D)  Average return and the standard deviation
E)  Actual return and the risk-free rateF) D) and E)
G) B) and D)

Question 13

Suppose a stock had an initial price of $36 per share,paid a dividend of $.42 per share during the year,and had an ending share price of $34.What was the capital gains yield?

Accepted Answer

A)  6.72 percent
B)  7.12 percent
C)  3.78 percent
D)  -5.56 percent
E)  -4.94 percentF) A) and C)
G) B) and E)

Question 14

Sarah earned a 3.3 percent real rate of return on her investments for the past year.During that time,the risk-free rate was 3.6 percent and the inflation rate was 3.1 percent.What was her nominal rate of return?

Accepted Answer

A)  5.30 percent
B)  6.06 percent
C)  6.50 percent
D)  6.67 percent
E)  6.91 percentF) D) and E)
G) A) and C)

Question 15

One year ago,you purchased a 6 percent coupon bond with a face value of $1,000 when it was selling for 98.6 percent of par.Today,you sold this bond for 101.2 percent of par.What is your total dollar return on this investment?

Accepted Answer

A)  $86
B)  $60
C)  $64
D)  $74
E)  $82F) D) and E)
G) B) and C)

Question 16

The period 1926-2014 illustrates that U.S.Treasury bills:

Accepted Answer

A)  outperform inflation by approximately 1 percent every year.
B)  have a zero standard deviation.
C)  can either outperform or underperform inflation on an annual basis.
D)  produce a rate of return roughly equivalent to the rate of return on long-term government bonds.
E)  routinely have negative annual returns.F) D) and E)
G) A) and B) C

Question 17

What was the average annual risk premium on small-company stocks for the period 1926-2014?

Accepted Answer

A)  12.3 percent
B)  11.2 percent
C)  12.9 percent
D)  13.2 percent
E)  13.5 percentF) All of the above
G) A) and D)

Question 18

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 E)
G) B) and C)

Question 19

Over the past six years,a stock had annual returns of 18 percent,-6 percent,2 percent,27 percent,-11 percent,and 13 percent,respectively.What is the standard deviation of these returns?

Accepted Answer

A)  15.27 percent
B)  14.66 percent
C)  13.59 percent
D)  15.08 percent
E)  14.38 percentF) A) and D)
G) All of the above

Question 20

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) A) and E)
G) B) and E)

Exam 10: Some Lessons From Capital Market History

Home Grown Tomatoes stock returned 11.6 percent,3.2 percent,8.1 percent,14.2,and 9.8 percent over the past five years,respectively.What is the arithmetic average return for this period?

Correct AnswerverifiedShow Answer

You've observed the following returns on Blast It Corporation's stock over the past five years: 19 percent,-23 percent,31 percent,18 percent,and -7 percent,respectively.What was the variance of the returns over this period?

Correct AnswerverifiedShow Answer

Which answer creates a false sentence? Percentage returns:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation?

Correct AnswerverifiedE

Which one of the following statements is true regarding the period 1926-2014?

Correct AnswerverifiedShow Answer

The historical record for the period 1926-2014shows that the annual nominal rate of return on:

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 1926-2014,what rate of return should you expect to earn over the long-term if you are unwilling to bear risk?

Correct AnswerverifiedD

The stock of Southern United is priced at $52 a share and has a dividend yield of 3.6 percent.The firm pays constant annual dividends.What is the amount of the next dividend per share?

Correct AnswerverifiedShow Answer

You purchased a zero coupon bond one year ago for $346.72.The market interest rate is now 5.75 percent.If the bond had 15 years to maturity when you originally purchased it,what is your total return to date if the face value of the bond is $1,000?

Correct AnswerverifiedShow Answer

The variance is the average squared difference between which of the following?

Correct AnswerverifiedShow Answer

Suppose a stock had an initial price of $36 per share,paid a dividend of $.42 per share during the year,and had an ending share price of $34.What was the capital gains yield?

Correct AnswerverifiedShow Answer

Sarah earned a 3.3 percent real rate of return on her investments for the past year.During that time,the risk-free rate was 3.6 percent and the inflation rate was 3.1 percent.What was her nominal rate of return?

Correct AnswerverifiedShow Answer

One year ago,you purchased a 6 percent coupon bond with a face value of $1,000 when it was selling for 98.6 percent of par.Today,you sold this bond for 101.2 percent of par.What is your total dollar return on this investment?

Correct AnswerverifiedShow Answer

The period 1926-2014 illustrates that U.S.Treasury bills:

Correct AnswerverifiedC

What was the average annual risk premium on small-company stocks for the period 1926-2014?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Over the past six years,a stock had annual returns of 18 percent,-6 percent,2 percent,27 percent,-11 percent,and 13 percent,respectively.What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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D

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C

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