Finance - Chapter 10

The capital gains yield =

(Pt+1 - Pt)/Pt

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

*dividends *capital gains

The Ibbotson SBBI data show that over the long-term, ___.

*small-company stocks generated the highest average return *small-company stocks had the highest risk level *T-bills, which had the lowest risk, generated the lowest return

The dividend yield =

Dt+1/Pt

Dividends are the ______ component of the total return from investing in a stock.

income

Treasury Bills yielded a nominal average return over 86 years of 3.5% versus an average inflation rate of 3.0% over the same period. This makes the real return on T-bills approximately equal to _____.

3.5% - 3.0% = 0.5%

Arrange the following investments starting from lowest historical risk premium to highest historical risk premium.

U.S. Treasury Bills Long-term corporate bonds Large-company stocks Small-company stocks

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

A capital loss is the same thing as a negative _____.

capital gain

The percentage change in the price of a stock over a period of time is called its ___________.

capital gain yield

The total dollar return is the sum of dividends and __________.

capital gains or losses

To get the average return, the yearly returns are summed and then ____ by the number of returns.

divided

The total return percentage is the:

dividend yield plus the capital gains yield

The two potential ways to make money as a stockholder are through _______ and capital appreciation.

dividends

The risk-return relationship states that a riskier investment should demand a ____________ return.

higher

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

Historically, the real return on Treasury bills has been:

low

In the Ibbotson-Sinquefield studies, U. S. Treasury bill data is based on T-bills with a maturity of:

one month

The excess return is the difference between the rate of return on a risky asset and the ______ rate.

risk-free

The standard deviation is the ______ of the variance.

square root

The square of the standard deviation is equal to the ____.

variance

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

The ______ rate of return is the difference between the rate of return on a risky asset and the risk-free rate of return.

excess

If the dispersion of returns on a particular security is very spread out from the security's mean return, the security ____.

is highly risky