ACC final

strong form efficiency

Market prices reflect all information, both public and private

Empirical Rule Rule (68-95-99.7)

1, 2, 3 std dev away

To calculate the expected risk premium on a stock, one must subtract the ________ from the stock's expected return

risk-free rate

which mean should you use for short med long

s = arithmetic l = geometric

An investor who owns a well-diversified portfolio would consider ________ to be irrelevant

unsystematic risk

capitial gain formula

(end - int) / int

the beta of the market is

1

_________ measures the amount of systematic risk present in a particular risky asset relative to the systematic risk present in an average risky asset

Beta

Which of the following are components used in the construction of the WACC?

Cost of debt Cost of preferred stock Cost of common stock

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?

Efficient capital market

total % return

dividend yield + capital gains yield

Dividend Yield Formula

dividends per share/ initial

The return an investor in a security receives is ______ the cost of the security to the company that issued it

equal

The historical record for 1926-2019, Bonds are generally more __________ investment than are stocks.

safer, or less risky,

Inside information has the least value when financial markets are:

strong

Most financial securities have some level of ________ risk

systematic

true or false: unsystematic can be effectively eliminated by portfolio diversification.

true

semistrong form efficiency

Prices reflect all publicly available information including trading information, annual reports, press releases, etc. If the market is semistrong form efficient, then investors cannot earn abnormal returns by trading on public information Implies that fundamental analysis will not lead to abnormal returns

Which stock had the highest average annual return for the period 1926-2019?

Small-company stocks

define geometric return

The average compound return earned per year over a multiyear period.

define arithmatic return

The return earned in an average year over a multiyear period.

weak form efficiency

current prices reflect all information derived from trading -includes current and past stock prices and trading volume

The average compound return earned per year over a multiyear period is called the _____ average return

geometric

more volitile the higher the ____ and _____

higher variance and std dev

Evidence seems to support the view that studying public information to identify mispriced stocks is:

ineffective

Preferred stock ____ (2)

pays a constant dividend pays dividends in perpetuity

delayed reaction

the price partially adjusts to the new information; eight days elapse before the price completely reflects the new information

The rate of return on which type of security is normally used as the risk-free rate of return?

treasury bills

Of the options listed below, which is most directly impacted by the level of systematic risk? Variance of the returns Standard deviation of the returns Expected rate of return Risk-free rate Market risk premium

Expected rate of return

Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst?

Weak

What does WACC stand for?

Weighted average cost of capital

define portfolio beta

a weighted average of the betas of the individual securities contained in the portfolio

geometric average

average compound return per period over multiple periods overly pessimistic for short horizons

financial markets allow _____ to increase their utility

companies, gov, and individuals

The rate used to discount project cash flows is known as the _____ (3)

cost of capital required return discount rate

A firm's overall cost of capital will include both its cost of ___ capital and equity capital.

debt

dollar return formula

dividend per share + (end - int)

list investment from largest to smallest avg return (6)

large stock, small stock, long term corporate bonds, long term gov bonds, us treasury, inflation

Overreation

price overadj to new info, overshoots new price

arithmetic average

return earned in an average period over multiple periods overly optimistic for long horizons

risk premium formula

return on risky asset - risk free rate risk free rate = treasury bill return

Assume that last year T-bills returned 2.2 percent while your investment in large-company stocks earned an average of 8.1 percent. Which one of the following terms refers to the difference between these two rates of return?

risk premium

2008 stock market

s&p plunged 37% index lost 17%

The cost of capital depends on the _____ of funds, not the _____ of funds

use, source

efficient market reaction

The price instantaneously adjusts and reflects new information.

In general, the arithmetic average return is probably too _____ (low/high) for longer periods and the geometric average is probably too _____ (low/high) for shorter periods

high, low

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

increase

To convince investors to accept greater volatility, you must:

increase the risk premium

the geometric average will be _____ than the arithmetic average unless all the returns are equal

less

What can we say about the dividends paid to common and preferred stockholders? (2)

Dividends to preferred stockholders are fixed. Dividends to common stockholders are not fixed.

The SML approach requires estimates of the _____ (2)

beta coefficient market risk premium

True or false: An increase in an unrealized capital gain will increase the capital gains yield

true

true or false: Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year in time period 1926-2019

true

efficient markets are a result of investors trading on the _______ portion of announcement

unexpected