Financial Mangement Ch. 12

Studying market history can reward us by demonstrating that _____.

-the greater the potential reward is, the greater the risk -on average, investors will earn a reward for bearing risk

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

Capital gains Dividends

Percentage returns are more convenient than dollar returns because they ____.

apply to any amount invested

The dividend yield for a 1-year period is equal to the annual dividend amount divided by the ______.

beginning stock price

The (blank) gains yield can be found by taking the difference between the ending stock price and the initial stock price and dividing it by the initial stock price.

capital

If you buy a stock for $10 and later sell it for $16, you will have a

capital gain of $6

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

capital gains or losses

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

cash

Historically, there is a(n) ______ relationship between risk and expected return in the stock market.

direct

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

dividends

The total dollar return on a stock is the sum of the ____ and the _____.

dividends; capital gains

Roger Ibbotson and Rex Sinquefield's research on historical rates of return:

does not adjust returns for inflation or taxes.

The (greater/lower) the risk, the greater the required return.

greater

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

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 ______.

initial stock price

(blank) returns tell how much was received for each dollar invested, so they can be applied to any initial investment amount.

percent

The Ibbotson-Sinquefield data presents returns from 1925 to the recent past for:

small cap stocks large cap stocks US T-bills

A capital gain on a stock results from an increase in ______.

stock price

The dividend (blank) is defined as the annual dividend amount divided by the beginning stock price.

yield