Principles of Finance - Exam 3

To convince investors to accept greater volatility, you must:

increase the risk premium

As long as the inflation rate is positive, the real rate of return on a security will be ____ the nominal rate of return.

less than

Applying the discounted payback decision rule to all projects may cause:

some positive net present value projects to be rejected

A project has a net present value of zero. Given this information:

the project's cash inflows equal its cash outflows in current dollar terms

Standard deviation is a measure of which one of the following?

volatility

Which of the following yields on a stock can be negative?

Capital gains yield and total return

Sung Office Products just announced it is decreasing its annual dividend from $2.20 per share to $1.85 per share effective immediately. If the dividend yield remains at its pre-announcement level, then you know the stock price:

Decreased proportionately with the dividend decrease.

In actual practice, managers most frequently use which two types of investment criteria?

Internal rate of return (IRR) and net present value (NPV)

According to theory, studying historical stock price movements to identify mispriced stocks:

Is ineffective even when the market is only weak form efficient

Which one of the following statements related to market efficiency tends to be supported by current evidence?

Markets tend to respond quickly to new information.

The length of time a firm must wait to recoup the money it has invested in a project is called the:

Payback Period

Which one of the following categories of securities had the highest average annual return for the period 1926-2019?

Small-company stocks

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient.

Strong

Inside information has the least value when financial markets are:

Strong form efficient.

The rate of return on which type of security is normally used as the risk-free rate of return?

Treasury bills