ch 10 McGraw-Hill hill Finance

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

A dividend yield of 10% says that, for each dollar we invest, we get _______ cents in dividends.

10

Roger Ibbotson and Rex Sinquefield presented year-to-year historical rates of return on types _________ of financial investments.

5

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: 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

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

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 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

True or false: The smaller the variance or standard deviation is, the more spread out the returns will be.

false

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 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

An unrealized gain is treated the same as a realized gain when computing the total __________

return

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

True or false: The risk premium can be interpreted as a reward for bearing risk True False

true

The normal distribution is completely described by the _______ and ________. correlation coefficient variance or standard deviation mean median

variance or standard deviation mean

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

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

Dividends are the ______ component of the total return from investing in a stock. capital gains price appreciation income amortization

income

The standard deviation is the ______ of the variance. square root square inverse exponent

square root

With a normal distribution, the probability that we end up withing two standard deviations is about ______ percent.

95

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

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 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 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 geometric average return is the average _________stock, Incorrect Unavailable return earned per year over a multiyear period.

compound

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 ______ 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

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

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