ch. 10 smartbook (fin)

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

$2 x 100

% returns are better to use for comparisons versus $ returns because...

% terms don't depend on the amount you invest

capital gains yield

(Pt+1 - Pt)/Dt

The ibbotson-sinquefield data show that

*long-term corporate bonds had less risk or variability than stocks *U.S. T-bills had the lowest risk or variability

Lowest historical risk premium to highest historical risk premium

1.) Us Treasury bills 2.) long-term corp bonds 3.) large- company stocks 4.) small-company stocks

The arithmetic mean for large-company stock returns from 1926 to 2021 is

12.2%

Bonds used in Ibbotson SBBI long-term U.S gov't bond portfolio had maturities of ___ years

20

The probability of a return being within one standard deviation of the mean in a nominal distribution is approximately _____ percent

68

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

95

The arithmetic rate of return measures the return in an average year over

A given period

Total Return

An unrealized gain is treated the same as a realized gain

Some important characteristics of the normal distribution are that it's

Bell-shaped + symmetrical

The % change in the price of a stock over a period of time is called it's

Capital gain yield

Total return % =

Dividend yield + capital gains yield

Two potential ways for a stockholder to make $ is through _____ and capital apperciation

Dividends

Dividend yield =

Dt+1/Pt

In the Ibbotson-Sinquefield studies, US Treasury bill data is based on T-bills with a maturity of

One month

T-bills sometimes

Outperform common stocks

If you use a geometric average to project short-run wealth levels, your results will be

Pessimistic

Who conducted a famous set of studies dealing with rates of return in US Financial markets?

Roger Ibbotson + Rex Sinquefield

Geometric averages are usually ______ arthimetic averages

Smaller than

The variance and it's square root, the ___ ____ are the most commonly used measures of volatility

Standard deviation

Which of the following are true based on the year-to-year returns from 1926 to 2021?

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

The capital gains yield can be found by finding the difference between

The ending stock price + inital stock price and dividing it by the inital stock price

What's needed to describe the distribution of stock returns?

The mean return The standard deviation of returns

What is needed to describe the distribution of stock returns?

The standard deviation of returns The mean return

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

Consumer Price Index (CPI)

Used to measure inflation

What will the dividend income be on W number of shares of XYZ stock if XYZ distributes a $Y per share dividend?

W x $Y

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 allow comparison against other investments

To compute the _______ return, the yearly returns are summed and then divided by the number of returns.

average

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

beginning stock price

When a company declares a dividend, shareholders generally receive ____.

cash

The average return on the stock market can be used to

compare stock returns with the returns on other securities

The geometric rate of return takes ____ into account

compounding

Historically, there is a ________ relationship between risk and expected return in the financial markets

direct

Total dollar return =

dividend income + capital gain (or loss)

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

excess

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

five

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

income

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

information

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

is highly risky

Without any other information, you can use the average return from a time period as a "best guess"

of the return in a given year from that same period

Normally, the excess rate of return is ___.

positive

Historically, the real return on Treasury bills has been:

quite low

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 geometric average rate of return is approximately equal to

the arithmetic mean minus half of the variance

Two ways of calculating average returns are _______ and _______.

the geometric average the arithmetic average

The square of the standard deviation is equal to the

variance

The normal distribution is completely described by the ____ and _____

variance or standard deviation mean