Exam 3: Chapter 10
Match each information type to the form of market efficiency that identifies that type of information as being quickly and accurately reflected in stock prices
1) All Information=> Strong form efficiency 2) All Public Information=> Semi-strong form efficiency 3) Historical Stock Prices=> Weak form efficiency
Percentage returns are more convenient than dollar returns because they:
1) Apply to any amount invested 2) Allow comparison against other investments
Some important characteristics of the normal distribution are that it is:
1) Bell-shaped 2) Symmetrical
Which of the following are ways to make money by investing in stocks?
1) Capital Gains 2) Dividends
The second lesson from studying capital market history states that the ________ the potential reward, the _______ the risk.
1) Less; Less 2) Greater; Greater
Arrange the following investments from highest to lowest risk (standard deviation) based what our study of capital market history from 1926-2014 has revealed as shown in Table 10.3:
1) Small-Company common stock 2) Large Company Stock 3) Long-term corporate bonds 4) Long-Term government bonds 4) U.S treasury bills
Which of following are rue based on the year-to year returns from 1926-2014?
1) T-Bills sometimes outperform common stocks 2) Common stocks frequently experience negative returns
Two ways of calculating average returns are ______ and _______.
1) The geometric average 2) The arithmetic average
Which of the following are needed to describe the distribution of stock returns?
1) The standard deviation of returns 2) The mean return
The Ibbotson-Sinquefield data shows that:
1) U.S T-Bills had the lowest risk or variability 2) Long-term corporate had less risk or variability than stocks
Arrange the following investments from lowest historical risk premium to highest historical risk premium
1) U.S Treasury Bills 2) Long-Term corporate bonds 3) Large-Company stocks 4) Small-company stocks
Bonds used in Ibbotson SBBI long-term U.S government bond portfolio had maturities of ______ years.
20
In 2008. The S&P 500 plunged ___%
37%
More volatility in returns produces _________ difference between the arithmetic and geometric averages.
A larger
A positive capital gain on a stock results from _____.
An increase in price
The dividend yield for a one-year period is equal to the annual dividend amount divided by the ______.
Beginning stock price
______ were a bright spot for U.S Investors' during 2008.
Bonds
If you buy a stock for $10 and later sell it for $16, you will have a ______.
Capital gain of $6
When a company declares a dividend, shareholders generally receive _____.
Cash
The average return on the stock market can be used to _____.
Compare stock returns with the return on other securities
The geometric rate of return takes ______ into account.
Compounding
Historically, there is a(n) ________ relationship between risk and expected return in the financial markets.
Direct
The two potential ways to make money as a stockholder are through _______ and capital appreciation.
Dividends
The total dollar return on a stock is the sum of the ____ and the _____.
Dividends; Capital Gains
In an efficient market, firms should expect to receive _____ value for securities they sell.
Fair
Roger Ibbotson and Rex Sinquefield presented year-to-year historical rates of return on _____ important types of financial investments.
Five
In 2008, the prices on long-term U.S. Treasury Bonds ________.
Gained 40%
The second lesson from studying capital market history is that risk is:
Handsomely rewarded
Dividends are the _______ component of the total return from investing in a stock.
Income
An efficient market is one that fully reflects all available ______.
Information
Stock prices fluctuate from day to day because of:
Information flow
The capital gain yield can be found by finding the difference between the ending stock price and the initial stock price and dividing it by the:
Initial stock price
If the dispersion of returns on a particular security is very spread out from the security's mean return, the security _______.
Is highly risky
In the Ibbotson-Sinquefield studies, U.S treasury bill data is based on T-Bills with a maturity of ________ month(s).
One
The year 2008 was:
One of the worst years for stock market investors in U.S. history
If you use an arithmetic average to project long-run wealth levels, your results will most likely be _________.
Optimistic
Which type of stock price adjustment time path occurs when there is a bubble (price run up) in the path followed by a decline after the market receives information about the stock?
Overreaction and correction
If you use a geometric average to project short-run wealth levels, your results will most likely be _______.
Pessimistic
Normally, the excess rate of return is _____.
Positive
Historically, the real return on Treasury bills has been:
Quite low
The arithmetic average rate of return measures the ______.
Return in an average year over a given period
Using capital market history as a guide, it would appear the greatest reward would come from investing in _______.
Small-company common stock
Which of the following is commonly used to measure inflation?
The Consumer Price Index (CPI)
The geometric average rate of return is approximately equal to _____.
The arithmetic mean minus half of the variance
True or False: The risk premium can be interpreted as a reward for bearing risk
True
The square of the standard deviation is equal to the ______.
Variance
If a study of past stock prices and volume to find miss-priced securities will not lead to gains in the market, then the market must be at least _____ efficient.
Weak-form
The efficient markets hypothesis contends that ______ capital markets such as the NYSE are efficient.
Well-Organized