Finance Chapter 8 Learnsmart
$100/2
$2 x 100
If stock GHI has returns of 6% and -2% over 2 years, the geometric average rate of return is _____.
1.92%
A dividend yield of 10% says that, for each dollar we invest, we get _______ cents in dividends.
10
You buy a stock for $100. In one year its price rises to $114, and it pays a $1 dividend. Your capital gains yield is _____
14%
One year ago, Ernie purchased shares of RTF common stock for $100 a share. Today the stock paid a dividend of $1 per share. If the stock currently sells for $114 per share, what is Ernie's total return?
15%
The standard deviation for large-company stock returns from 1926 to 2011 is:
20.3%
Suppose you bought 100 shares of Banks & Bower, Inc. for $50 a share. During the yea, B&B paid a $0.50 per share dividend. At year end, B&B was selling for $60 a share. What is your total percentage return?
21%
If a stock's returns for years 1 to 4 were 3%, 5%, and -2%, what is the standard deviation of these returns?
4.203%
Roger Ibbotson and Rex Sinquefield presented year-to-year historical rates of return on types _________ of financial investments.
5
If the annual stock market returns for Berry Company were 19 percent, 13 percent and -8 percent, what was the arithmetic mean for those 3 years?
8%
If a series of stock returns has a variance of 0.0068, what is the standard deviation?
8.24%
With a normal distribution, the probability that we end up withing two standard deviations is about ______ percent.
95
Interest
Capital gains
Consumer price index is always positive.
Common stocks frequently experience negative returns.
Historically, there is a(n) _____ relationship between risk and expected return in the stock market.
Direct
bankruptcy distributions
Dividends
False
False
True or false: The capital gains yield = (Pt+1 - Pt)/Dt
False
True or false: The dividend yield minus the capital gains yield is the total return percentage.
False
True or false: To get the average return, the yearly returns are summed and then multiplied by the number of returns.
False
Which of the following are true?
T-bills sometimes outperform common stocks; common stocks frequently experience negative returns
The life span of the stock
The mean return
Which of the following are needed to describe the distribution of stock returns?
The standard deviation of returns; the mean return
False
True
Roger Ibbotson and Rex Sinquefield conducted a famous set of studies dealing with rates of return in U.S. financial markets.
True
W - $Y
W x $Y
If a stock has returns of 10 percent and 20 percent over 2 years, the geometric average rate of return can be calculated by _____
[(1.10)(1.20)]^5 - 1
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.
all information -> strong form efficiency; all public information -> semi-strong form efficiency; historical stock prices -> weak form efficiency
In an efficient market _____ investments have a _____ NPV
all;zero
a decrease in price
an increase in price
symmetrical
bell-shaped
government payouts
capital gains or losses
cash
cash
The geometric average return is the average _________stock, Incorrect Unavailable return earned per year over a multiyear period.
compound
The geometric rate of return takes _____ into account
compounding
The total return percentage is the _______ yield plus the capital gains yield.
dividend
The total return percentage is the _________ yield plus the capital gains yield.
dividend
Which of the following are ways to make money by investing in stocks?
dividends, capital gains
dividends; capital gains
dividends; capital gains
True or false: The smaller the variance or standard deviation is, the more spread out the returns will be.
false
always detrimental to returns
handsomely rewarded
has a low level of risk
highly risky
dividend yield
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
The second lesson from studying capital market history states that the _____ the potential reward, the _____ the risk
less;less - greater;greater
less; greater
lower; lower
To get the average, or ________ return, the yearly returns are summed and then divided by the number of returns.
mean
An unrealized gain is treated the same as a realized gain when computing the total __________
return
federal funds
risk free
small-company stocks had the highest risk level
small-company stocks generated the highest average return
The Ibbotson-Sinquefield data show that over the long-term, _____
small-company stocks had the highest risk level; t-bills, which had the lowest risk, generated the lowest return; small-company stocks generated the highest average return.
The geometric average rate of return is approximately equal to _____
the arithmetic mean minus half the variance
False
true
True or false: A capital gain on a stock is counted as part of the total return whether or not the gain is realized from selling the stock.
true
median
variance or standard deviation
Arrange the following investments from lowest historical risk premium to highest historical risk premium.
U.S. Treasury Bills, Long-term corporate bonds, large-company stocks, small company stocks
are more accurate than dollar amounts
apply to any amount invested
Percentage returns are more convenient than dollar returns because they
apply to any amount invested; allow comparison against other investments
ending stock price
beginning stock price
capital gain yield
capital gains yeild
The average return on the stock market can be used to _____
compare stock returns with the returns on other securities
accurately forecast the market's returns in the future
compare stock returns with the returns on other securities
real
excess
In an efficient market, firms should expect to receive _____ value for securities they sell.
fair
False
false
amortization
income
If you use an arithmetic average to project long-run wealth levels, your results will most likely be _____
optimistic
If you use a geometric average to project short-run wealth levels, your results will most likely be _____
pessimistic
negative
postive
Geometric averages are usually _____ arithmetic averages
smaller than
exponent
square root