Chapter 11

An investor receives a 15% total return by purchasing a stock for $40 and selling it after one year with a 5% capital gain. How much was received in dividend income during the year?

$4.00

A share of stock currently sells for $60, pays an annual dividend of $4.00, and earned a rate of return of 20% over the past year. What did this stock sell for one year ago?

$53.33

In a year in which common stocks offered an average return of 18%, Treasury bonds offered 10%, and Treasury bills offered 7%. The risk premium for common stocks was:

11%

Sue purchased a stock for $25 a share, held it for one year, received a $1.34 dividend, and sold the stock for $26.45. What nominal rate of return did she earn?

11.16%

A portfolio is comprised of 60% of Stock A and 40% of Stock B. What is the expected return of the portfolio?

7.7%

What is the expected return on a portfolio that will decline in value by 13% in a recession, will increase by 16% in normal times, and will increase by 23% during boom times if each scenario has an equal likelihood of occurrence?

8.67%

Risk factors that are expected to affect only a specific firm are referred to as:

diversifiable risk

The primary difference between U.S. Treasury bills and U.S. Treasury bonds is that the bills:

have a shorter maturity at time of issue.

Which one of the following risks is most important to a well-diversified investor in common stocks?

market risk

The major benefit of diversification is the:

reduction in the portfolio's total risk