Finance Chapter 12

one year ago, you purchase a stock at price of $32.16. the stock pays quarterly dividends of $.20 per share. today, the stock is selling for $28.20 per share. what is your capital gain on this investment? -4.16 -3.96 -3.76 -3.16 -2.96

-3.96

assume that you invest in a porfolio of large company stocks. further assume that the portfolio will earn a rate of return similar to the average return on large-company stocks for 1926-2007. what rate of return should you expect to earn? < 10% 10-12.5% 12.5%-15% 15-17.5% >17.5%

10-12.5%

highest annual rate of inflation in 1926-2007 between 0-3% 3-5% 5-10% 10-15% 15-20%

10-15%

probability that small-company stocks wil produce an annual return that is more then one standard deviation below the average: 1% 2.5% 5.0% 16% 32%

16%

average rate of inflation between 1926-2007 < 2% 2.0-2.5 2.5-3.0 3.0-3.5 > 3.5%

3.0-3.5

the average annual return on small-company stocks was about ... % greater than the average annual return on large-company stocks 0ver 1926-2007

5

according to Jeremy Siegel, the real return on stocks over the long-term has averaged about: 6.8% 8.7% 10.4% 12.3% 14.8%

6.8%

all securities in this market are zero at nvp investments

Efficient market hypothesis

correct in relation to a stock investment: I capital gains yield can be positive, negative, or zero II dividend yield can be positive, negative, or zero III total return can be positive, negative, or zero IV neither the dividend yield nor the total return can be negative

I & III

if the variability of the returns on large compnay stocks were to increase over the long-term, you would expect which of the following to occur as a result? I decrease in the average rate of return II increase in the risk premium III increase in the 68% probability range of the frequency distribution of returns IV decrease in the standard deviation

II & III

correspond to a wide frequency distribution: I relatively low risk II low rate of return III relatively high standard deviation IV relatively large risk premium

III & IV

which two of the following are the most likely reasons why a stock price might not react at all on the day that new information related to the stock issuer is released? I insiders know the information prior to the announcement II investors need time to digest the information prior to reacting III the information has no bearing on the value of the firm IV the information was anticipated

III & IV

which is true based on the historical record for 1926-2007? I risk and potential reward are inversely related II risk free securities produce a positive real rate of return each year III returns are more predictable over the short-term than they are over the long-term IV bonds are generally a safer investment than are stocks

IV

... had a positive average real rate of return in 1926-2007

US treasury bills

had the lowest average risk premium in 1926-2007?

US treasury bills

lease volatile from 1926-2007

US treasury bills

the return earned in an average year over a multi-year period is called the ...

arithmetic average return

small-company stocks are best defined as: a 500 newest corporations in the US b firms whose stock trades otc c smallest 20% of the firms listed on the NYSE d smallest 20% of the firms listed on the NASDAQ e firms whose stock is listed on NASDAQ

c

which time periods are associated with high rates of inflation: a 1929-1933 b 1957-1961 c 1978-1981 d 1992-1996 e 2001-2005

c

an increase in an unrealized capital gain will increase the capital gains yield

capital gains

next years annual dividend divided by todays stock price

dividend yield

assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. which one of the following terms best defines that market? risk less market evenly distributed market zero volatility market blumes market efficient capital market

efficient capital market

this is computed as return on a risky security minus the risk free rate

excess return

the average compound return earned per year over a multi-year period is the ...

geometric average return

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 greater than equal to less than greater than or equal to unrelated to

less than

long term government bonds had a ... return but a higher standard deviation on average than did ... corporate bonds

lower, long term

the real rate of return on a stock is approximately equal to the nominal rate of return:

minus the inflation rate

defined by its mean and its standard deviation

normal distribution

estimates of the rate of return on a security based on a historical artihmetic average will probably tend to ... the expexted return for the long-term while estimates using the historical geometric average will probably tend to ... the expected return for the short term

overestimate, underestimate

US t bills during 1926-2007, the annual rate of return was always ...

positive

the primary purpose of blumes formula is to

project future rates of return

you are aware that your neighbor trades stocks based on confidential info he overhears at his workplace. this information is not available to the general public. this neighbor continually brags to you about the profits he earns on these trades. given this you would tent to argue that the financial markets are at best ... from efficient weak semiweak semistrong strong perfect

semistrong

earned the highest risk premium 1926-2007

small company stocks

most volatile returns over 1926-2007?

small company stocks

which category of securities had the highest average return for 1926-2007?

small company stocks

the US securities and exchange commission (SEC) periodically charges infividuals with insider trading and claims those individuals have made unfair profits. given this you would be most apt to argure that the markets are less than ... form efficient weak semiweak semistrong strong perfect

stong

the greater the volatility of returns,

the greater the risk premium

standard deviation is a measure of ...

volatility

if you excel in analyzing the future outlook of firms, you would prefer the financial market be ... form efficient so that you can have an advantage in the marketplace

weak