Finance Chapter 8 Learnsmart

If stock GHI has returns of 6% and -2% over 2 years, the geometric average rate of return is _____.

1.92%

You buy a stock for $100. In one year its price rises to $114, and it pays a $1 dividend. Your capital gains yield is _____

14%

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%

The standard deviation for large-company stock returns from 1926 to 2011 is:

20.3%

Suppose you bought 100 shares of Banks & Bower, Inc. for $50 a share. During the yea, B&B paid a $0.50 per share dividend. At year end, B&B was selling for $60 a share. What is your total percentage return?

21%

If a stock's returns for years 1 to 4 were 3%, 5%, and -2%, what is the standard deviation of these returns?

4.203%

If the annual stock market returns for Berry Company were 19 percent, 13 percent and -8 percent, what was the arithmetic mean for those 3 years?

8%

If a series of stock returns has a variance of 0.0068, what is the standard deviation?

8.24%

Historically, there is a(n) _____ relationship between risk and expected return in the stock market.

Direct

Which of the following are true?

T-bills sometimes outperform common stocks; common stocks frequently experience negative returns

Which of the following are needed to describe the distribution of stock returns?

The standard deviation of returns; the mean return

If a stock has returns of 10 percent and 20 percent over 2 years, the geometric average rate of return can be calculated by _____

[(1.10)(1.20)]^5 - 1

Match each information type to the form of market efficiency that identifies that type of information as being quickly and accurately reflected in stock prices.

all information -> strong form efficiency; all public information -> semi-strong form efficiency; historical stock prices -> weak form efficiency

In an efficient market _____ investments have a _____ NPV

all;zero

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

compare stock returns with the returns on other securities

Which of the following are ways to make money by investing in stocks?

dividends, capital gains

In an efficient market, firms should expect to receive _____ value for securities they sell.

fair

If the dispersion of returns on a particular security is very spread out from the security's mean return, the security ___

is highly risky

The second lesson from studying capital market history states that the _____ the potential reward, the _____ the risk

less;less - greater;greater

If you use an arithmetic average to project long-run wealth levels, your results will most likely be _____

optimistic

The Ibbotson-Sinquefield data show that over the long-term, _____

small-company stocks had the highest risk level; t-bills, which had the lowest risk, generated the lowest return; small-company stocks generated the highest average return.

Geometric averages are usually _____ arithmetic averages

smaller than

The geometric average rate of return is approximately equal to _____

the arithmetic mean minus half the variance

The geometric rate of return takes _____ into account

compounding

If you use a geometric average to project short-run wealth levels, your results will most likely be _____

pessimistic

Arrange the following investments from lowest historical risk premium to highest historical risk premium.

U.S. Treasury Bills, Long-term corporate bonds, large-company stocks, small company stocks

Percentage returns are more convenient than dollar returns because they

apply to any amount invested; allow comparison against other investments