Finance- Exam #2- Ch 12

If you invested $100 and made a total dollar return of $10 over the course of the year, your year end total cash would be ___?

$110

If you receive $2 a dividend per share on your 100 shares, you total dividend income is:

$200

What is the maximum capital loss that you can incur if you bought 200 shares of TP Inc. for $32?

$6,400

Which of the following are true?

- T-bills sometimes outperform common stocks. - Common stocks frequently experience negative returns.

Percentage returns are more convenient than dollar returns because they:

- apply to any amount invested

Studying market history can reward us by demonstrating that:

- there is a reward for bearing risk - the greater the potential reward is, the greater the risk

The Ibbotson-Sinquefield data show that over the long-term:

1. T-bills, which had the lowest risk, generated the lowest rerun 2. Small company stocks had the highest risk level 3. Small-company stocks generated the highest average return

If you are forecasting a few decades in the future you should calculate the expected return using:

Blume's formula

The capital gains 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

-The Sharpe ratio measures _____.

Reward to risk.

Which of the following is commonly used to measure inflation

The Consumer Price Index (CPI)

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

when a company declares a dividend, shareholders generally receive ___

cash

The total dollar return on a stock is the sum of the _____ and the _____.

dividends; capital gains

An efficient market is one that fully reflects all available _____.

information

Stock prices fluctuate from day to day because of:

information flow

The year 2008 was

one of the worst years for stock market investors in US history

Variance is measured in ______, while standard deviation is measured in ________

percent squared percent

The arithmetic average rate of return measures the _____.

return in an average year over a given period

Geometric averages are usually ____ arithmetic averages?

smaller than

The rates of return in the Ibbotson-Sinquefield studies are not adjusted for which of the following?

taxes inflation

average returns can be calculated

two different ways: arithmetic & geometric

The square of the standard deviation is equal to the ___

variance

If you buy 100 shares of ABC stock at $5 per share, your total investment is _____?

$500

The Ibbotson-Sinquefield data presents returns from 1925 to the recent past for:

-US T-Bills, -Large cap stocks -Small cap stocks

Palmer Company had the following returns: 2009: 12% 2010: 10% 2011: -8% 2012: 4% 2013: 22% What is the variance of Palmer's returns?

0.0122

If the risk premium of stock JKL is 5% while the standard deviation is 10%, then the Sharpe ratio equals?

0.5

Arrange the following investments in ascending order 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 stock

If stock ABC has a mean return of 10 percent with a standard deviation of 5 percent, then the probability of earning a return greater than 15 percent is about _____ percent.

16 prob(R>15%) = (1-.68)/2

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%

Which are true about the historical equity risk premiums of the countries studied by Dimson, Marsh and Staunton?

United States, Australia, South Africa

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

_____ 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

The second lesson from studying capital market history is that risk is:

handsomely rewarded

The price of XYZ stock rises from $10 to $15. If you own 100 shares, your capital gain is _____.

$500 (15x100) - (10x100) = 500

Arrange the following investments from highest to lowest risk (standard deviation) based on what our study of capital market history from 1926-2011 has revealed

1. Small-company common stock 2. Large-company common stocks 3. Long-term corporate bonds 4. Long-term government bonds U.S. Treasury bills

Palmer Company had the following returns: 2009: 12% 2010: 10% 2011: -8% 2012: 4% 2013: 22% What is the standard deviation of Palmer's return?

11.04%

The probability of an outcome being within one standard deviation of the mean in a normal distribution is approximately _________ percent.

68

What is the arithmetic average return for a stock that has annual returns of 8%, 2%, and 11% for the past 3 years?

7%

You bought one share of stock for $100 and received a 2$ dividend. If the price of the stock rose to $103, then your total dollar return would be _____.

$5 103-100+2 = 5

In an efficient market:

- All investments have NPV=0 - Assets are priced at the present value of their future cash flows

Some important characteristics of the normal distribution are that it is

- Bell-shaped - Symmetrical

Look at the frequency distribution in Figure 12.9 and rank the following ranges of stock returns in order from highest to lowest frequency.

1. 10%-20% 2. 20%-30% 3. 0-10% 4. -10%-0

A share of common stock currently sells for $100 and will pay a dividend of $2 at the end of the year. If the price is expected to increase to $113 at the end of one year, what is the stock's current dividend yield?

2% ($2/$100)

In the Ibbotson study, the large-company common stock portfolio is based on the _____

S&P 500 Composite Index

Mona Corporation has a variance of returns of 343, while Scott Company has a variance of returns of 898. Which company's actual returns vary more from their mean return?

Scott Company

Which of the following are ways to make money by investing in stocks?

capital gains dividends

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% ($114-100)/$100

Suppose you buy a share of stock for $100. At the end of one year the stock price is $144 and a $1 dividend is paid. If you do not sell the stock, your total annual return is _________.

15%

t/F: 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

The dividend yield for a one-year period is equal to the annual dividend amount divided by the _____.

beginning stock price

The efficient markets hypothesis contends that ____ capital markets such as the NYSE are efficient.

well-organized