Finance Exam #3

the highest rate of annual inflation between 1926 & 2003

18%

which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2003

U.S. treasury bills

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

arithmetic

the notion that actual capital markets, such as the NYSE, are fairly priced

efficient markets hypothesis (EMH)

the cash flows of a new project that come at the expense of a firm's existing projects

erosion costs

during the period of 1926 through 2003 the annual rate of inflation...

fluctuated significantly from one year to the next

___ is shaped like a bell curve

frequency distribution

if the financial markets are efficient, then investors should expect their investments in those markets to...

generally have zero NPVs

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

geometric

the convince investors to accept greater volatility in the annual rate of return on an investment, you must...

increase the risk premium

rank the securities based on their volatility over the period of 1926 - 2003

large company stocks, long-term corporate bonds, long-term government bonds

over the period of 1926 through 2003, the annual rate of return on _____ has been more volatile than the annual rate of return on _____

large company stocks; long-term corporate bonds

a symmetric, bell-shaped frequency distribution that is completely defined by its mean & standard deviation is the ____ distribution

normal

estimates using the arithmetic average will probably tend to ___ values over the long-term while estimates using the geometric average will probably tend to ___ value over the short-term

overestimate; underestimate

the standard deviation for a set of stick returns can be calculated as the _____

positive square rook of the variance

the excess return required from a risky asset over that required from a risk-free asset

risk premium

an efficient capital market is one in which

security prices reflect available information

the hypothesis that market prices reflect all publicly-available information is called _____ form efficiency

semi-strong

based on the period of 1926 through 2003, ____ have tended to outperform other securities over the long-term

small company stocks

the variance of returns is computer by dividing the sum of the...

squared deviations by the number of returns minus 1

the hypothesis that market prices reflect all available information of every kind is called _____ from efficiency

strong

insider trading does not offer any advantages if the financial markets are

strong-form efficient

the risk premium is computer by ____ the average return for the investment

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

the cash flow from projects for a company is computed as the ___

sum of the incremental operating cash flow, capital spending, & net working capital expenses incurred by the project

the Zolo Co. just declared that they are increasing their annual divident from $1.00 per share to $1.25 per share. If the stock price remains constant, then:

the dividend yeild will increase

the capital gains yield plus the dividend yield on a security

total return

the average squared difference between the actual return & the average return

variance

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

weak

the hypothesis that market prices reflect all historical information is called _____ form efficiency

weak