Finance Ch. 10

If you invested $100 and made a total dollar return of $10 over the course of the year, your year end total cash would be ___?

$110

Six months ago, you purchased 100 shares of stock in ABC Co. at a price of $43.89 a share. ABC stock pays a quarterly dividend of $.10 a share. Today, you sold all of your shares for $45.13 per share. What is the total amount of your capital gains on this investment?

$124.00

One year ago, you purchased a stock at a price of $32.50. The stock pays quarterly dividends of $.40 per share. Today, the stock is worth $34.60 per share. What is the total dollar return per share to date from this investment?

$3.70

What is the maximum capital loss that you can incur if you bought 200 shares of TP Inc. for $32?

$6,400

Winslow, Inc. stock is currently selling for $40 a share. The stock has a dividend yield of 3.8 percent. How much dividend income will you receive per year if you purchase 500 shares of this stock?

$760

If stock GHI has an initial price of $100. 2 years later the price is $132. What is GHI's geometric mean rate of return?

($132/$100)^1/2 - 1 = 14.89%

The range of returns for a large stock portfolio, within 2 standard deviations, is ___?

-28.1 and +52.3%

If the risk premium of stock JKL is 5% while the standard deviation is 10%, then the Sharpe ratio equals?

.5

The standard deviation of small company stocks is over ___ times as large as the standard deviation of U.S. Treasury bills?

10

One year ago, Ernie purchased shares of RTF common stock for $100 a share. Today the stock paid a dividend of $1 per share. If the stock currently sells for $114 per share, what is Ernie's total return?

15%

If stock ABC has a mean return of 10% with a standard deviation of 5%, then the probability of earning a negative return is approximately ___ percent?

2.5%

Long-term corporate bonds are a portfolio of high-quality corporate bonds with ____ year maturities?

20

Suppose a stock had an initial price of $54 per share, paid a dividend of $1.30 per share during the year, and had an ending share price of $64. Compute the percentage total return

20.93%

You purchased 300 shares of stock at a price of $21.72 per share. Over the last year, you have received total dividend income of $240. What is the dividend yield?

3.68%

One year ago, you purchased a stock at a price of $32 a share. Today, you sold the stock and realized a total return of 14.62 percent. Your capital gain was $3.48 a share. What was your dividend yield on this stock?

3.75%

In 2008, the S&P 500 Index lost approximately what percent of its value?

37%

What is the arithmetic average return for a mutual fund that reported a return of 5% every year for the last 3 years?

5%

The probability of a return being within one standard deviation of the mean in a normal distribution is approximately ___ percent?

68%

If the arithmetic average return is 10% and the variance of returns is 0.05, find the approximate geometric mean?

7.5%

The ___ mean is the best estimate of next year's return?

Arithmetic

The ____ average is used to find the mean of a frequency distribution?

Arithmetic

The dividend yield for one-year period is equal to the annual dividend amount divided by the ______?

Beginning stock price

The total dollar return is the sum of dividends and _____?

Capital gains or losses

The average return on the stock market can be used to _____?

Compare stock returns with the returns on other securities

Suppose a stock had an initial price of $72 per share, paid a dividend of $2.60 per share during the year, and had an ending share price of $84. What was the dividend yield and the capital gains yield?

Dividend yield = 3.61 % Capital gains yield = 16.67%

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

Dividends

The average excess return on common stocks is called the ___ risk premium?

Equity

The greater the volatility of returns, the ___ the risk premium?

Greater

The higher the standard deviation, the ___ the expected return?

Higher

The ___ period rate of return is simply the rate of return over some arbitrary investment period?

Holding

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

Which country tends to have the highest stock market risk premium?

Italy

The arithmetic average rate of return measures the ?

Return in an average year over a given period

The excess return on a risky asset is the difference between the risky return and the ___ rate?

Risk-free

Geometric averages are usually ____ arithmetic averages?

Smaller than

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2014?

U.S. treasury bills

Which group of countries tends to have the highest Sharpe ratios based on historical equity risk premiums and standard deviations of returns since 1900?

United States, Australia, South Africa

The square of the standard deviation is equal to the ____?

Variance

In estimating the future equity risk premium, it is important to include assumptions about the:

future risk environment and the amount of risk aversion of future investors.

Over the period of 1926 through 2014, the annual rate of return on _____ has been more volatile than the annual rate of return on _____.

large-company stocks; long-term corporate bonds

In 2008, which asset class had the highest rate of return in the U.S.?

long-term U.S. Treasury bonds

A symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the _____ distribution.

normal

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:

risk premium

Based on the period of 1926 through 2014, _____ have tended to outperform other securities over the long-term.

small-company stocks

The risk premium is computed by ______ the average return for the investment.

subtracting the average return on the U.S. Treasury bill from

The capital gains yield plus the dividend yield on a security is called the:

total return

The average squared difference between the actual return and the average return is called the:

variance

A frequency distribution of stock returns displays _____?

~Frequency of occurence for each rate of return range ~Various ranges of returns on the horizontal axis

The Ibbotson SBBI data shows that _____?

~Long-term corporate bonds had less risk than stocks ~T-bills had the lowest risk

What are the characteristics of a skewed distribution?

~Not symmetrical ~Can be skewed to the right or left ~Mean is not equal to the median

The rate of return in the Ibbotson SBBI yearbook are not adjusted for ?

~Taxes ~Transaction costs

A frequency distribution of stock returns displays___?

~The frequency of occurences for each rate of return range ~Various ranges of returns on the horizontal axis