Chapter 10 and 11: exam 3
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 = 100 + 10
if you buy 40 shares of BP stock at $35 per share, your total investment in BP is
$1400 = 40 x 35
If you receive a $2 dividend per share on your 100 shares, your total dividend income is ____. $2 x 100 $1002 $2/100 $100/2
$2 x 100
what will the dividend income be on 1000 shares of XYZ stock if XYZ distributes a $.20 per share dividend?
$200 = .2 x 1000
if you receive a $2 dividend per share on your 100 shares, your total dividend income is
$200 = 2 x 100
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
If your total dollar return was $7 and your dividend was $2, then the price change on your stock must have been ____
$5 = 7-2
the price of XYZ stock rises from $10 to $15. if you own 100 shares, your capital gain is
$500 = (15-10) x 100
the price of a stock drops from $50 to $40 per share. if you own 50 shares, your total capital loss is
$500 = (40-50) x 50
if you buy 100 shares of ABC stock at $5 per share, your total investment is
$500 = 100 x 5
the range of returns for a large stock portfolio, within 2 standard deviations, is ____.
-28.1 and +52.3%
if the risk premium of stock MNO is 10% and the standard deviation is 40%, what is the sharpe ratio?
.25 = .1/.4
if the risk premium of stock JKL is 5% while the standard deviation is 10%, then the sharpe ratio equals
.5 = .05/.1
the treasury bills used in the Ibbotson SBBI yearbook had maturities of:
1 month
A dividend yield of 10% says that, for each dollar we invest, we get _______ cents in dividends.
10
You buy a stock for $50. Its price rises to $55, and it pays a $2 dividend. You do not sell the stock. Your capital gains yield is
10% = (55 - 50) / 50
if stock GHI has an initial price of $100. two years later the price is $132. what is GHI's geometric mean rate of return?
14.89% = (132/100)^(1/2) - 1
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% = (114 - 100 + 1) / 100
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% is about _______%.
16 = Prob (R>15%) = (1-.68)/2
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
the probability of a return being more than two standard deviations below the mean in a normal distribution is approximately _____ percent.
2.5
If stock ABC has a mean return of 10 percent with a standard deviation of 5 percent, then the probability of earning a negative return is approximately ___ percent.
2.5 = .05/2
Bonds used in Ibbotson SBBI long-term U.S. government bond portfolio had maturities of ___ years.
20
long-term corporate bonds is a portfolio of high-quality corporate bonds with _____-year maturities.
20
the 94.5% confidence interval for the historical standard error for the true us equity risk premium should be within _____ % to _____%.
3.4; 11
Roger Ibbotson and Rex Sinquefield presented year-to-year historical rates of return on types _________ of financial investments.
5
what is the arithmetic average return for a mutual fund that reported a return of 5% every year for the last 3 years?
5% = (5% + 5% + 5%)/3
going back to 1802, the us historical risk premium is, on average, about ________ %.
5.4
what is the approximate standard deviation of the returns on an average stock?
50%
in 2015, the us stock market represented about _________% of the world stock market capitalization.
57.7
the probability of a return 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 had annual returns of 8%, 2%, and 11% for the past 3 years?
7% = (8 + 2 + 11)/3
If the arithmetic average return is 10% and the variance of returns is 0.05, find the approximate geometric mean
7.5
From 1900 to 2010, the US ranked ____ when compared internationally in terms of highest equity risk premium.
7th
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% = (.19 + .13 - .08) / 3
the long-run average risk premium for large-company common stocks for the period 1926 to 2014 was:
8.6%
With a normal distribution, the probability that we end up withing two standard deviations is about ______ percent.
95
the probability of an outcome being within two standard deviations of the mean in a normal distribution is approximately _______ percent.
95
Which of the following are ways to make money by investing in stocks? Capital gains Dividends Amortization Interest
Capital gains Dividends
Which of the following are true based on the year-to-year returns from 1926-2014? Common stocks frequently experience negative returns. T-bills sometimes outperform common stocks. Consumer price index is always positive.
Common stocks frequently experience negative returns. T-bills sometimes outperform common stocks.
The two potential ways to make money as a stockholder are through _______ and capital appreciation. coupon payments dividends interest payments bankruptcy distributions
Dividends
True or false: Percentage returns are difficult to use for comparisons because they depend on the dollar amount invested. True False
False
True or false: The capital gains yield = (Pt+1 - Pt)/Dt
False
True or false: The capital gains yield = (Pt+1 - Pt)/Dt True False
False
True or false: The dividend yield minus the capital gains yield is the total return percentage.
False
True or false: The dividend yield minus the capital gains yield is the total return percentage. True False
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 needed to describe the distribution of stock returns? The mean return The standard deviation of returns The variety of returns The life span of the stock
The mean return The standard deviation of returns
T/F Roger Ibbotson and Rex Sinquefield conducted a famous set of studies dealing with rates of return in U.S. financial markets.
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 False
True
True or false: A capital loss is the same thing as a negative capital gain. True False
True
True or false: The dividend yield = Dt+1/Pt True False
True
What will the dividend income be on W number of shares of XYZ stock if XYZ distributes a $Y per share dividend? $Y - W W/$Y W x $Y W - $Y
W x $Y
if a stock has returns of 10% and 20% over 2 years, the geometric average rate of return can be calculated by
[(1.10)(1.20)]^.5 - 1
the excess rate of return: a) can occasionally be negative b) is generally positive over the long term c) can never be negative for more than a 1-year period
a + b
which of the following are needed to describe the distribution of stock returns? a) the standard deviation of returns b) the mean return c) the variety of returns d) the life span of the stock
a + b
the Ibbotson SBBI data show that over the long-term: a) T-bills, which have the lowest risk, generated the lowest return b) small-company stocks had the highest risk level c) long-term corporate bonds had the lowest risk d) large-company stocks generated the highest average return e) small-company stocks generated the highest average return
a + b + e
when dealing with the history of capital market returns, an average stock market return is useful because it: a) is the best estimate of any one years stock market return during the specified period b) guarantees the long-term future rate of return c) simplifies detailed market data d) accurately forecasts future short-run returns
a + c
a frequency distribution of stock returns displays: a) various ranges of returns on the horizontal axis b) the standard deviation of all data points c) the average of all data points d) the frequency of occurrence for each rate of return range
a + d
the rates of return in the Ibbotson SBBI yearbook are not adjusted for which of the following? a) taxes b) bond coupons c) dividends d) transaction costs
a + d
which of the following are true about the stock performance of other countries in 2008? a) Russia's stock prices fell by more than 50% b) china's stock prices actually went up by 5% c) india's stock prices only fell by 20% d) Iceland's stock prices fell by over 90%
a + d
A positive capital gain on a stock results from ___. an increase in the coupon rate an increase in price an increase in the dividend a decrease in price
an increase in price
a positive capital gain on a stock results from
an increase in price
Percentage returns are more convenient than dollar returns because they:
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 avoid using the dollar sign are more accurate than dollar amounts
apply to any amount invested allow comparison against other investments
the _____ mean is the best estimate of next years returns.
arithmetic
what are some important lessons from the 2008 financial crisis? a) investors should invest all of their funds in T-bills b) diversification is important c) the stock market is risky d) the risk premium going forward will probably be lower
b + c
which of the following are true? a) on average, T-bills outperform common stock b) common stocks frequently experience negative returns c) T-bills sometimes outperform common stocks
b + c
which of the following positive financial events occurred in the us in 2008? a) inflation was only 5% b) T-bills had positive returns c) long-term bonds had positive returns d) corporate bonds rose 15%
b + c
some important characteristics of normal distribution is that it is: a) very bumpy b) symmetrical c) skewed to the right d) bell-shaped
b + d
The dividend yield for a one-year period is equal to the annual dividend amount divided by the ____. beginning stock price average of the beginning and ending stock prices ending stock price
beginning stock price
the dividend yield for a one-year period is equal to the annual dividend amount divided by the
beginning stock price
Some important characteristics of the normal distribution are that it is: skewed to the right bell-shaped very "bumpy" and not smooth symmetrical
bell-shaped symmetrical
the Ibbotson SBBI data presents returns from 1948 to the recent past for: a) high-yield bonds b) municipal bonds c) small-company stocks d) us treasury bills e) large-company stocks
c + d + e
The total dollar return is the sum of dividends and __________. capital gains or losses overall market fluctuations percentage returns government payouts
capital gains or losses
the total dollar return is the sum of dividends and
capital gains or losses
The percentage change in the price of a stock over a period of time is called its ___________. price change yield growth yield total return capital gain yield
capital gains yeild
When a company declares a dividend, shareholders generally receive ____. interest income store credit promissory notes cash
cash
The average return on the stock market can be used to ___. compare stock returns with the returns on other securities find ways to beat the market accurately forecast the market's returns in the future
compare stock returns with the returns on other securities
the average return on the stock market can be used to
compare stock returns with the returns on other securities
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
historically, there is a ______ relationship between risk and expected return in the financial markets.
direct
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
The total dollar return on a stock is the sum of the ____ and the _____. capital gains; interest payments interest payments; dividends dividends; capital gains
dividends; capital gains
the _____ risk premium on common stocks represents the additional return from bearing risk.
equity
the average excess return on common stocks is called the _____ risk premium.
equity
The ______ rate of return is the difference between the rate of return on a risky asset and the risk-free rate of return. excess nominal subliminal real
excess
True or false: Because T-bills have low risk relative to common stocks, T-bills cannot outperform common stocks. True False
false
True or false: The average return of a given period is typically not a good estimate of the returns over that same period. True False
false
True or false: The smaller the variance or standard deviation is, the more spread out the returns will be.
false
the Ibbotson SBBI small stock portfolio includes the bottom _______ of NYSE listed stocks.
fifth
The second lesson from studying capital market history is that risk is: to be avoided altogether largely ignored handsomely rewarded always detrimental to returns
handsomely rewarded
If the dispersion of returns on a particular security is very spread out from the security's mean return, the security ____. is risk-free is highly risky has a low level of risk
highly risky
the _____ period rate of return is simply the rate of return over some arbitrary investment period.
holding
Dividends are the ______ component of the total return from investing in a stock. capital gains price appreciation income amortization
income
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: cost of capital ending stock price initial stock price dividend yield
initial stock price
The second lesson from studying capital market history states that the _______ the potential reward, the _______ the risk lower; lower greater; greater greater; less less; greater
lower; lower greater; greater
To get the average, or ________ return, the yearly returns are summed and then divided by the number of returns.
mean
Normally, the excess rate of return is ___. zero positive negative
postive
An unrealized gain is treated the same as a realized gain when computing the total __________
return
the arithmetic average rate of return measures the
return in an average year over a given period
the sharpe ratio measures
reward to risk
assumptions related to the _____ are critical for forecasting future us equity premiums.
risk aversion of future investors and the future risk environment
The excess return is the difference between the rate of return on a risky asset and the ______ rate. prime inflation risk-free federal funds
risk free
The Ibbotson SBBI data show that over the long-term, ___. long-term corporate bonds had the lowest risk large-company stocks generated the highest average return small-company stocks generated the highest average return T-bills, which had the lowest risk, generated the lowest return small-company stocks had the highest risk level
small-company stocks generated the highest average return T-bills, which had the lowest risk, generated the lowest return small-company stocks had the highest risk level
geometric averages are usually _____ arithmetic averages
smaller than
The standard deviation is the ______ of the variance. square root square inverse exponent
square root
in the Ibbotson study, the large-company common stock portfolio is based on the _____.
standard & poor's composite index
the sharpe ratio is the stocks excess return (risk premium) divided by its ______.
standard deviation
using the Ibbotson SBBI yearbook, year-by-year real returns can be calculated by
subtracting the annual inflation rate from the annual historical rate of return
the geometric average rate of return is approximately equal to:
the arithmetic mean minus half the variance
(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
True or false: The risk premium can be interpreted as a reward for bearing risk True False
true
the square of the standard deviation is equal to
variance
The normal distribution is completely described by the _______ and ________. correlation coefficient variance or standard deviation mean median
variance or standard deviation mean