FIN3403 Chapter 12 Conceptual
What is the probability that small-company stocks will produce an annual return that is more than one sd below the avg
16 percent
Which of the following time periods is associated with low rates of inflation?
2010-2013
The avg annual return on a small-company stocks was about ___ percent greater than the avg annual return on a large-company stock over the period 1926-2013
5
based on the period 1926-2013, the actual real return on large-company stocks has been around
8.3 percent
Which of the following is correct ranking of securities based on volatility of their annual returns over the period of 1926-2013; highest to lowest
Long-term gov bonds, long-term corporate bonds, intermediate term gov bonds
Which of the following categories of securities had the lowest avg risk premium for the period 1926-2013
US treasury bills
Which of the following had the least volatile annual returns over the period of 1926-2013
US treasury bills
Which of the following statements correctly applies to the period 1926-2013
US treasury bills had a positive avg real rate of return
Which of the following statements is a correct reflection of the US markets for the period 1926-2013
US treasury bills provide a positive rate of return each and every year during the period
Which of the following statements is correct concerning market efficiency
a firm will generally receive a fair price when it issues new shares of stock if the market if efficient
Which of the following statements best defines the efficient market hypothesis
all securities in an efficient market are zero npv investments
Which of the following statements related to capital gains is correct
an increase in an unrealized capital gain will increase the capital gains yield
The return earned in an avg year over multiyear period is called the ____ avg return
arithmetic
What was the highest annual rate of inflation during the period 1926-2013
between 15 and 20 percent
What was the avg rate of inflation over the period 2916-2013
between 2.8 and 3.2
Assume you invest in a portfolio of US treasury bills and that the portfolio will earn a rate of return similar to the avg return on US treasury bills for the period 1926-2013. What rate of return should you expect to earn
between 3 to 4 percent
Which of the following statements are true based on the historical record for 1926-2013
bonds are generally a safer investment than are stocks
Which of the following yields on a stock can be negative
capital gains yield and total return
If the variability of the returns on a large-company stocks were to decrease over the long-term, you would expect which of the following to occur as a result
decrease in the 68 percent probability range of returns
Bayside marina just announced it is decreasing its annual dividend from 1.64 per share to 1.5 per share effective immediately. If the dividend yield remains at its pre-announcement level, then you know the stock price is
decreased proportionately with the dividend decrease
Assume all stock prices fairly reflect all of the available information on those stocks. Which of the following terms best defines the stock market under these conditions
efficient capital market
the average compound return earned per year over a multiyear period is called the _____ avg return
geometric
Generally speaking, which of the following most correspond to a wide frequency distribution: low risk, low return, high sd, large risk prem
high standard deviation and large risk prem
To convince investors to accept volatility, you must
increase the risk premium
Evidence seems to support the view that studying public info to identify mispriced stocks is
ineffective
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
Which of the following statements is correct based on the historical record for the period 1926-2013
long-term government bonds had a lower return but a higher sd on avg than did long-term corporate bonds
Which of the following statements is correct based on the period of 1926-2013
long-term government bonds had more volatile annual returns than did the long-term corporate bonds
Individual investors who continually monitor the financial markets seeking mispriced securities
make the markets increasingly more efficient
Which of the following statements related to market efficiency tends to be supported by current evidence
markets tend to respond quickly to new info
The real rate of return on a stock is approximately equal to the nominal rate of return
minus the inflation rate
Which of the following correctly describes the dividend yield?
next year's annual dividend divided by today's stock price
Which of the following is defined by its mean and standard dev?
normal distribution
Estimates of the rate of return on a security based on the historical arithmetic average will probably tend to ___ the expected return for the long-term and estimates using the historical geometric average will probably tend to ____ the expected return for the short-term
overestimate, underestimate
The primary purpose of Blume's formula is to
project future rates of return
The excess return is computed as the
return on a risky security minus the risk-free rate
Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which of the following terms refers to the difference between these two rates of return
risk premium
you are aware that your neighbor trades stocks based on confidential info
semi strong form efficient
Which of the following categories of securities had the highest average return for the period 1926-2013
small company stocks
Which of the following earned the highest risk premium over the period 1926-2013
small company stocks
the historical record for the period 1926-2013 supports which of the following statements
small company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year
Which of the following categories of securities had the most volatile annual returns over the period 1926-2013
small-company stocks
Small-company stocks, as the term is used in the textbook, are best defined as the
smallest twenty percent of the firms listed on the NYSE
Inside info has the least value when financial markets are
strong form efficient
The US 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
strong form efficient
Which of the following statements concerning us t bills is correct for the period 1926-2013
the annual rate of return was always positive
Which one of the following best defines the variance of an investment's annual returns over a number of years
the avg squared difference between the actual returns and the arithmetic avg returns
Stacey purchased a stock last year and sold it today for 3 dollars a share more than her purchase price. She received a total of .75 in dividends. Which of the following statements is correct in relation to this investment
the capital gains yield is positive
Which of the following is most likely the reason why a stock price might not react at all on the day that new info related to the stock's issuer is released? Assume the market is semi strong form efficient
the information was expected
Efficient financial markets fluctuate continuously because
the markets are continually reacting to new info
SD is a measure of which of the following
volatility
Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst?
weak
Which of the following is most indicative of a totally efficient stock market
zero net present values for all stock investments