Investments Final Chapter 1

50. A stock sold for $25 at the beginning of the year. The end of year stock price was $25.70. What is the amount of the annual dividend if the total return for the year was 7.7 percent? A. $1.23 B. $1.38 C. $1.60 D. $1.81 E. $2.31

A. $1.23

56. You purchased a stock eight months ago for $36 a share. Today, you sold that stock for $41.50 a share. The stock pays no dividends. What was your annualized rate of return? A. 23.32 percent B. 24.77 percent C. 25.70 percent D. 26.03 percent E. 27.67 percent

A. 23.32 percent

44. One year ago, you purchased 100 shares of Southern Foods common stock for $42.20 a share. Today, you sold your shares for $39.70 a share. During this past year, the stock paid $1.40 in dividends per share. What is your dividend yield on this investment? A. 3.32 percent B. 3.37 percent C. 3.44 percent D. 3.53 percent E. 3.61 percent

A. 3.32 percent

61. Last year, ABC stock returned 11.4 percent, the risk-free rate was 3.2 percent, and the inflation rate was 2.8 percent. What was the risk premium on ABC stock? A. 8.20 percent B. 8.43 percent C. 8.60 percent D. 8.88 percent E. 8.97 percent

A. 8.20 percent

37. Which one of the following statements is correct? A. The standard deviation of the returns on Treasury bills is zero. B. Large-company stocks are historically riskier than small-company stocks. C. The variance is a means of measuring the volatility of returns on an investment. D. A risky asset will always have a higher annual rate of return than a riskless asset. E. There is an indirect relationship between risk and return.

A. The standard deviation of the returns on Treasury bills is zero.

7. The risk premium is defined as the rate of return on: A. a risky asset minus the risk-free rate. B. the overall market. C. a U.S. Treasury bill. D. a risky asset minus the inflation rate. E. a riskless investment.

A. a risky asset minus the risk-free rate.

38. The wider the distribution of an investment's returns over time, the _____ the expected average rate of return and the ______ the expected volatility of those returns. A. higher; higher B. higher; lower C. lower; higher D. lower; lower E. The distribution of returns does not affect the expected average rate of return.

A. higher; higher

10. A frequency distribution, which is completely defined by its average (mean) and standard deviation, is referred to as a(n): A. normal distribution. B. variance distribution. C. expected rate of return. D. average geometric return. E. average arithmetic return.

A. normal distribution.

9. The standard deviation is a measure of: A. volatility. B. total return. C. capital gains. D. changes in dividend yields. E. changes in the capital gains rate.

A. volatility.

49. You purchased a stock for $46.70 a share and resold it one year later. Your total return for the year was 11.2 percent and the dividend yield was 2.8 percent. At what price did you resell the stock? A. $42.78 B. $50.62 C. $51.93 D. $52.08 E. $57.54

B. $50.62

52. Christine owns a stock that dropped in price from $38.70 to $34.10 over the past year. The dividend yield on that stock is 1.4 percent. What is her total return on this investment for the year? A. -11.31 percent B. -10.49 percent C. -9.91 percent D. -9.59 percent E. -8.51 percent

B. -10.49 percent

47. Today, you sold 800 shares of Sky High Inc., for $57.60 a share. You bought the shares one year ago at a price of $61.20 a share. Over the year, you received a total of $500 in dividends. What is your capital gains yield on this investment? A. -6.03 percent B. -5.88 percent C. -4.86 percent D. 6.25 percent E. 7.34 percent

B. -5.88 percent

65. An asset had annual returns of 12, 18, 6, -9, and 5 percent, respectively, for the last five years. What is the variance of these returns? A. .00810 B. .01013 C. .01065 D. .02038 E. .04052

B. .01013

46. One year ago, you purchased 400 shares of stock at a cost of $8,650. The stock paid an annual dividend of $1.10 per share. Today, you sold those shares for $23.90 each. What is the capital gains yield on this investment? A. 9.96 percent B. 10.52 percent C. 12.49 percent D. 13.33 percent E. 14.75 percent

B. 10.52 percent

35. The mean plus or minus one standard deviation defines the _____ percent probability range of a normal distribution. A. 50 B. 68 C. 82 D. 90 E. 95

B. 68

14. Which one of the following statements is correct concerning the dividend yield and the total return? A. The dividend yield can be zero while the total return must be a positive value. B. The total return can be negative but the dividend yield cannot be negative. C. The total return must be greater than the dividend yield. D. The total return plus the capital gains yield is equal to the dividend yield. E. The dividend yield exceeds the total return when a stock increases in value.

B. The total return can be negative but the dividend yield cannot be negative.

2. The dividend yield is defined as the annual dividend expressed as a percentage of the: A. average stock price. B. initial stock price. C. ending stock price. D. total annual return. E. capital gain.

B. initial stock price.

51. Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of $1.42 per share. After six months, he resold the stock for $71.30 a share. What was his total dollar return? A. $1,008 B. $1,860 C. $2,712 D. $3,211 E. $3,400

C. $2,712

71. An asset has an average annual historical return of 11.6 percent and a standard deviation of 17.8 percent. What range of returns would you expect to see 95 percent of the time? A. -41.8 to +65.0 percent B. -34.4 to +53.6 percent C. -24.0 to +47.2 percent D. -6.2 to +29.4 percent E. -5.4 to +41.0 percent

C. -24.0 to +47.2 percent

67. An asset had returns of 6.8, 5.4, 3.6, -4.2, and -1.3 percent, respectively, over the past five years. What is the variance of these returns? A. .00173 B. .00184 C. .00216 D. .00240 E. .00259

C. .00216

66. Over the past five years, Southwest Railway stock had annual returns of 10, 14, -6, 7.5, and 16 percent, respectively. What is the variance of these returns? A. .00548 B. .00685 C. .00770 D. .01370 E. .02740

C. .00770

55. Elise just sold a stock and realized a 6.2 percent return for a 4-month holding period. What was her annualized rate of return? A. 11.98 percent B. 14.78 percent C. 19.78 percent D. 21.29 percent E. 27.20 percent

C. 19.78 percent

45. You purchased a stock for $29.40 a share, received a dividend of $0.72 per share, and sold the stock after one year for $31.30 a share. What was your dividend yield on this investment? A. 2.30 percent B. 2.38 percent C. 2.45 percent D. 2.67 percent E. 2.80 percent

C. 2.45 percent

76. Over the past four years, the common stock of JL Steel Co. produced annual returns of 6.2, 5.8, 11.2, and 13.6 percent, respectively. Treasury bills produced returns of 3.4, 3.3, 4.1, and 4.7 percent, respectively over the same period. What is the standard deviation of the risk premium on JL Steel Co. stock for this time period? A. 2.23 percent B. 2.86 percent C. 3.22 percent D. 4.46 percent E. 4.61 percent

C. 3.22 percent

60. A stock has an average historical risk premium of 5.6 percent. The expected risk-free rate for next year is 2.4 percent. What is the expected rate of return on this stock for next year? A. 6.50 percent B. 7.53 percent C. 8.00 percent D. 9.34 percent E. 11.70 percent

C. 8.00 percent

69. Over the past four years, a stock produced returns of 13, 6, -5, and 18 percent, respectively. What is the standard deviation of these returns? A. 8.63 percent B. 9.93 percent C. 9.97 percent D. 10.11 percent E. 10.15 percent

C. 9.97 percent

1. The total dollar return on a share of stock is defined as the: A. change in the price of the stock over a period of time. B. dividend income divided by the beginning price per share. C. capital gain or loss plus any dividend income. D. change in the stock price divided by the original stock price. E. annual dividend income received.

C. capital gain or loss plus any dividend income.

6. The rate of return earned on a U.S. Treasury bill is frequently used as a proxy for the: A. risk premium. B. deflated rate of return. C. risk-free rate. D. expected rate of return. E. market rate of return.

C. risk-free rate.

18. When we refer to the rate of return on an investment, we are generally referring to the: A. capital gains yield. B. effective annual rate of return. C. total percentage return. D. dividend yield. E. annualized dividend yield.

C. total percentage return.

15. An annualized return: A. is less than a holding period return when the holding period is less than one year. B. is expressed as the summation of the capital gains yield and the dividend yield on an investment. C. is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period. D. is computed as (1 + holding period percentage return)m, where m is the number of holding periods in a year. E. is computed as (1 + holding period percentage return)m, where m is the number of months in the holding period.

D. is computed as (1 + holding period percentage return)m, where m is the number of holding periods in a year.

54. Shane purchased a stock this morning at a cost of $13 a share. He expects to receive an annual dividend of $.27 a share next year. What will the price of the stock have to be one year from today if Shane is to earn a 8 percent rate of return on this investment? A. $12.38 B. $12.60 C. $12.88 D. $13.77 E. $14.28

D. $13.77

53. You have been researching a company and have estimated that the firm's stock will sell for $44 a share one year from now. You also estimate the stock will have a dividend yield of 2.18 percent. How much are you willing to pay per share today to purchase this stock if you desire a total return of 15 percent on your investment? A. $37.55 B. $38.00 C. $38.24 D. $39.00 E. $40.20

D. $39.00

3. The capital gains yield is equal to: A. (Pt - Pt + 1 + Dt + 1)/Pt + 1. B. (Pt + 1 - Pt + Dt)/Pt. C. Dt + 1/Pt. D. (Pt + 1 - Pt)/Pt. E. (Pt + 1 - Pt)/Pt + 1.

D. (Pt + 1 - Pt)/Pt.

73. An asset has an average historical rate of return of 13.2 percent and a variance of .00972196. What range of returns would you expect to see approximately two-thirds of the time? A. -2.28 to +24.48 percent B. -6.52 to +32.92 percent C. -9.58 to +38.8 percent D. +3.34 to +23.06 percent E. +13.1 to +13.3 percent

D. +3.34 to +23.06 percent

59. Scott purchased 200 shares of Frozen Foods stock for $48 a share. Four months later, he received a dividend of $0.22 a share and also sold the shares for $42 each. What was his annualized rate of return on this investment? A. -44.69 percent B. -40.14 percent C. -33.00 percent D. -31.95 percent E. -28.07 percent

D. -31.95 percent

68. An asset had annual returns of 13, 10, -14, 3, and 36 percent, respectively, for the past five years. What is the standard deviation of these returns? A. 8.96 percent B. 16.05 percent C. 17.92 percent D. 18.09 percent E. 20.03 percent

D. 18.09 percent

58. Jason owned a stock for four months and earned an annualized rate of return of 11 percent. What was the holding period return? A. 2.37 percent B. 2.42 percent C. 2.46 percent D. 2.64 percent E. 2.72 percent

D. 2.64 percent

57. Eight months ago, you purchased 300 shares of a non-dividend paying stock for $27 a share. Today, you sold those shares for $31.59 a share. What was your annualized rate of return on this investment? A. 17.00 percent B. 21.45 percent C. 25.50 percent D. 26.55 percent E. 28.00 percent

D. 26.55 percent

16. Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it. What is the value of "m" when computing the annualized return on this investment? A. .25 B. .33 C. .40 D. 3.00 E. 4.00

D. 3.00

74. Jeremy owns a stock that has historically returned 7.5 percent annually with a standard deviation of 10.2 percent. There is only a 0.5 percent chance that the stock will produce a return greater than _____ percent in any one year. A. 20.9 B. 22.9 C. 32.2 D. 38.1 E. 54.8

D. 38.1

64. Over the past ten years, large-company stocks have returned an average of 10.4 percent annually, long-term corporate bonds have earned 4.6 percent, and U.S. Treasury bills have returned 3.2 percent. How much additional risk premium would you have earned if you had invested in large-company stocks rather than long-term corporate bonds over those ten years? A. 1.7 percent B. 3.7 percent C. 5.2 percent D. 5.8 percent E. 8.1 percent

D. 5.8 percent

4. When the total return on an investment is expressed on a per-year basis it is called the: A. capital gains yield. B. dividend yield. C. holding period return. D. effective annual return. E. initial return.

D. effective annual return.

36. Assume you own a portfolio that is invested 50 percent in large-company stocks and 50 percent in corporate bonds. If you want to increase the potential annual return on this portfolio, you could: A. decrease the investment in stocks and increase the investment in bonds. B. replace the corporate bonds with intermediate-term government bonds. C. replace the corporate bonds with Treasury bills. D. increase the standard deviation of the portfolio. E. reduce the expected volatility of the portfolio.

D. increase the standard deviation of the portfolio.

20. If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's: A. equity ratio. B. total book value. C. market share. D. market capitalization. E. time value.

D. market capitalization.

21. Which one of the following is considered the best method of comparing the returns on various-sized investments? A. total dollar return B. real dollar return C. absolute dollar return D. percentage return E. variance return

D. percentage return

17. Capital gains are included in the return on an investment: A. when either the investment is sold or the investment has been owned for at least one year. B. only if the investment is sold and the capital gain is realized. C. whenever dividends are paid. D. whether or not the investment is sold. E. only if the investment incurs a loss in value or is sold.

D. whether or not the investment is sold.

72. A stock has an average historical return of 11.3 percent and a standard deviation of 20.2 percent. Which range of returns would you expect to see approximately two-thirds of the time? A. -23.8 to +53.0 percent B. +4.6 to +33.8 percent C. +5.8 to +31.6 percent D. -3.9 to +32.5 percent E. -8.9 to +31.5 percent

E. -8.9 to +31.5 percent

75. Jefferson Mills stock produced returns of 14.8, 22.6, 5.9, and 9.7 percent, respectively, over the past four years. During those same years, U.S. Treasury bills returned 3.8, 4.6, 4.8, and 4.0 percent, respectively, for the same time period. What is the variance of the risk premiums on Jefferson Mills stock for these four years? A. .00298 B. .00196 C. .00396 D. .00478 E. .00528

E. .00528

48. One year ago, you purchased 300 shares of Southern Cotton at $32.60 a share. During the past year, you received a total of $280 in dividends. Today, you sold your shares for $35.80 a share. What is your total return on this investment? A. 8.79 percent B. 9.64 percent C. 10.16 percent D. 11.64 percent E. 12.68 percent

E. 12.68 percent

70. Downtown Industries common stock had returns of 8.2, 12.2, 11.5, and 6.3 percent, respectively, over the past four years. What is the standard deviation of these returns? A. 2.07 percent B. 2.38 percent C. 2.41 percent D. 2.59 percent E. 2.82 percent

E. 2.82 percent

19. Which one of the following should be used to compare the overall performance of three different investments? A. holding period dollar return B. capital gains yield C. dividend yield D. holding period percentage return E. effective annual return

E. effective annual return

8. The additional return earned for accepting risk is called the: A. inflated return. B. capital gains yield. C. real return. D. riskless rate. E. risk premium.

E. risk premium.

5. The risk-free rate is: A. another term for the dividend yield. B. defined as the increase in the value of a share of stock over time. C. the rate of return earned on an investment in a firm that you personally own. D. defined as the total of the capital gains yield plus the dividend yield. E. the rate of return on a riskless investment.

E. the rate of return on a riskless investment.