chapter 12 homework

One year ago, you purchased 100 shares of Best Wings stock at a price of $38.19 a share. The company pays an annual dividend of $.46 per share. Today, you sold for the shares for $37.92 a share. What is your total percentage return on this investment?

.50%

The common stock of Air Express had annual returns of 11.7 percent, 8.8 percent, 16.7 percent, and −7.9 percent over the last four years, respectively. What is the standard deviation of these returns?

10.66%

One year ago, you purchased 200 shares of SL Industries stock at a price of $18.97 a share. The stock pays an annual dividend of $1.42 per share. Today, you sold all of your shares for $17.86 per share. What is your total dollar return on this investment?

$62

One year ago, you purchased a stock at a price of $38.22 a share. Today, you sold the stock and realized a total loss of 11.09 percent on your investment. Your capital gain was -$4.68 a share. What was your dividend yield?

1.15%

Suppose a stock had an initial price of $62 per share, paid a dividend of $1.10 per share during the year, and had an ending share price of $74.

21.13% R = ($74 - 62 + 1.10)/$62 R = .2113, or 21.13%

You bought one of Great White Shark Repellant Co.'s 8 percent coupon bonds one year ago for $1,059. These bonds make annual payments and mature 10 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 7 percent. The bonds have a par value of $1,000. If the inflation rate was 4.8 percent over the past year, what was your total real return on investment?

3.64% P1 = $80(PVIFA7%,10) + $1,000(PVIF7%,10) P1 = $1,070.24 R = ($1,070.24 - 1,059 + 80)/$1,059 R = .0862, or 8.62% r = (1.0862/1.048) - 1 r = .0364, or 3.64%

Suppose a stock had an initial price of $84 per share, paid a dividend of $1.50 per share during the year, and had an ending share price of $73. Compute the percentage total return, dividend yield, and capital gains yield.

Total Return -11.31% Dividend 1.79% Capital Gain -13.10% R = ($73 - 84 + 1.50)/$84 R = −.1131, or −11.31% Dividend yield = $1.50/$84 Dividend yield = .0179, or 1.79% Capital gains yield = ($73 - 84)/$84 Capital gains yield = −.1310, or −13.10%

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.

semistrong

Suppose a stock had an initial price of $76 per share, paid a dividend of $1.42 per share during the year, and had an ending share price of $81. What was the capital gains yield?

6.58%

A stock had returns of 5 percent, 14 percent, 11 percent, −8 percent, and 6 percent over the past five years. What is the standard deviation of these returns?

8.44%

Which one of the following statements best defines the efficient market hypothesis?

All securities in an efficient market are zero net present value investments.

Which one of the following statements related to capital gains is correct?

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

A stock has had returns of 12 percent, 30 percent, 17 percent, −18 percent, 30 percent, and −7 percent over the last six years. What are the arithmetic and geometric average returns for the stock?

Arithmetic average return 10.67% Geometric average return 9.13% Arithmetic average return = (.12 + .30 + .17 - .18 + .30 - .07)/6 Arithmetic average return = .1067, or 10.67% Geometric average return = [(1 + .12)(1 + .30)(1 + .17)(1 - .18)(1 + .30)(1 - .07)](1/6) - 1 Geometric average return = .0913, or 9.13%

Which of the following statements are true based on the historical record for 1926-2016?

Bonds are generally a safer, or less risky, investment than are stocks.

Suppose a stock had an initial price of $80 per share, paid a dividend of $.60 per share during the year, and had an ending share price of $88. What was the dividend yield and the capital gains yield?

Dividend 0.75% Capital Gains 10.00% Dividend yield = $.60/$80 Dividend yield = .0075, or .75% Capital gains yield = ($88 - 80)/$80 Capital gains yield = .1000, or 10.00%

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

Which one of the following is a correct ranking of securities based on the volatility of their annual returns over the period of 1926-2016? Rank from highest to lowest.

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

Which one of the following correctly describes the dividend yield?

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

Which one of the following categories of securities had the highest average annual return for the period 1926-2016?

Small-company stocks

Which one of the following best defines the variance of an investment's annual returns over a number of years?

The average squared difference between the actual returns and the arithmetic average return

Stacy purchased a stock last year and sold it today for $4 a share more than her purchase price. She received a total of $1.15 per share in dividends. Which one of the following statements is correct in relation to this investment?

The capital gains yield is positive.

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2016?

U.S. Treasury bills

Standard deviation is a measure of which one of the following?

Volatility

The return earned in an average year over a multiyear period is called the _____ average return.

arithmetic

Which of the following yields on a stock can be negative?

capital gains yield and total return

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

geometric

To convince investors to accept greater volatility, you must:

increase the risk premium

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

ineffective

estimates of the rate of return on a security based on the historical arithmetic average will probably tend to _____ the expected return for the long-term and estimates using the historical geometric average will probably tend to _____ the expected return for the short-term.

overestimate; underestimate

Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return?

risk premium

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient.

strong

Inside information has the least value when financial markets are:

strong form efficient

Efficient financial markets fluctuate continuously because:

the markets are continually reacting to new information.

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

weak