chapter 10

This morning you purchased one share of stock for $14. The stock pays $.20 per share each quarter as a dividend. What must the stock price be one year from now if you want to earn a total return of 12 percent for the year? $14.54 $14.88 $15.01 $13.12 $13.46

$14.88

Assume you purchased 400 shares of stock for $20 a share, sold the stock for $8,392 and received a total of $550 in dividends. What was total dollar capital gain and total dollar return? $392; $942 $392; $158 $550; $942 $550; $158 $392; $550

$392; $942

Winslow stock is currently selling for $48 a share. The stock has a dividend yield of 3.1 percent. How much dividend income will you receive per year if you purchase 600 shares of this stock? $148.80 $390.47 $892.80 $639.05 $1,860.00

$892.80

The annual returns for KLO stock for the last three years are 11.2 percent, 16.4 percent and 3.8 percent. Assuming no dividends were paid, what was the 3-year holding period return? 10.47% 15.70% 31.40% 34.36% 36.52%

34.36%

The arithmetic average return on your portfolio for the past five years was 8.4 percent. Assume you earned -6 percent, 25 percent, 10 percent, and 6 percent for four of those five years. What rate of return did you earn in the fifth year? 5.0% 6.0% 7.5% 7.0% 10.0%

7.0%

What are the arithmetic and geometric average returns for a stock with annual returns of 11 percent, 14 percent, -2 percent and 6 percent? 8.25%; 8.15% 8.25%; 7.89% 7.25%; 7.37% 7.25%; 8.15% 7.25%; 7.08%

7.25%; 7.08%

A stock had returns of 12 percent, 6 percent, 14 percent, and -3 percent annually for the past four years. What is the mean and standard deviation of these returns? 8.75%; 9.11% 8.75%; 10.29% 7.25%; 7.63% 7.25%; 13.22% 7.25%; 11.08%

7.25%; 7.63%

A stock had annual returns of 8 percent, -2 percent, 4 percent, and 20 percent over the past four years. What is the standard deviation of these returns? 16.33% 16.09% 7.10% 9.29% 7.99%

9.29%

Which one of the following values cannot be negative? Capital gain, Pt + 1 - Pt Total dollar return Holding period return Dividend yield Total return, Rt + 1

Dividend yield

You are comparing the returns on two portfolios for a 10-year period. Portfolio I has a lower dispersion of returns and a higher average rate of return than Portfolio II. Given this, what do you know with certainty? Portfolio I has a lower standard deviation than Portfolio II. Portfolio I consists of more dividend-paying stocks than Portfolio II. Portfolio II has less total risk than Portfolio I. Portfolio I will outperform Portfolio II over the next 10 years. Portfolio II consists of more individual stocks than Portfolio I.

Portfolio I has a lower standard deviation than Portfolio II.

Which one of the following is a correct ranking of securities based on their volatility over the period of 1926 to 2012? Rank from highest volatility to lowest volatility. Small-company stocks, large-company stocks, long-term government bonds Large-company stocks, U.S. Treasury bills, long-term government bonds Small-company stocks, long-term government bonds, large-company stocks Long-term corporate bonds, large-company stocks, U.S. Treasury bills Small-company stocks, long-term corporate bonds, large-company stocks

Small-company stocks, large-company stocks, long-term government bonds

Over the period 1925-2012, stocks outperformed bonds by a wide margin. What conclusion should you draw from this performance? Stocks will have a higher rate of return than bonds in any given year. Investors should only purchase stocks. Any stock you select will outperform a bond over the long-term. On an annual basis, stock returns will exceed the rate of inflation but bond returns may or may not. Stocks are riskier than bonds.

Stocks are riskier than bonds.

Over the long-term, which one of the following is a correct statement concerning risk premium? The lower the volatility of returns, the greater the risk premium. Stocks tend to have a higher risk premium than bonds. The lower the rate of return, the greater the risk premium. The risk premium does not affect the rate of return. The risk premium varies by the same percentage rate as the inflation rate.

Stocks tend to have a higher risk premium than bonds.

Which one of these categories of securities has had the lowest volatility of returns over the period of 1926 through 2012? Large-company stocks U.S. Treasury bills Long-term corporate bonds Small-company stocks Long-term government bonds

U.S. Treasury bills

The return earned in an average year over a multi-year period is called the _____ average return. arithmetic standard variant geometric real

arithmetic

The average compound return earned per year over a multi-year period is called the _____ average return. real standard arithmetic variant geometric

geometric

The standard deviation for a set of stock returns can be calculated as the: variance squared. positive square root of the variance. positive square root of the average return. average return divided by N minus one, where N is the number of returns. average squared difference between the actual return and the average return.

positive square root of the variance.

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the: geometric average return. inflation premium. risk premium. time premium. arithmetic average return.

risk premium.

The capital gains yield plus the dividend yield on a security is called the: geometric return. total return. average period return. variance of returns. current yield.

total return.

The average squared difference between the actual return and the average return is called the: excess return. variance. standard deviation. risk premium. volatility return.

variance.