FINC311 CH10

76%

2008 was a bad year for markets worldwide. One of the worst hit was the Icelandic Exchange where shares priced dropped _____ in one day.

an increase in price

A positive capital gain on a stock results from ___.

return

An unrealized gain is treated the same as a realized gain when computing the total ________.

1. Small-company common stock 2. Large-company common stocks 3. Long-term corporate bonds 4. Long-term government bonds U.S. Treasury bills

Arrange the following investments from highest to lowest risk (standard deviation) based on what our study of capital market history from 1926-2014 has revealed as shown in Table 10.3:

smaller than

Geometric averages are usually ______ arithmetic averages.

quite low

Historically, the real return on Treasury bills has been:

a larger

More volatility in returns produces ______ difference between the arithmetic and geometric averages.

apply to any amount invested allow comparison against other investments

Percentage returns are more convenient than dollar returns because they:

initial stock price

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:

compounding

The geometric rate of return takes ______ into account.

variance or standard deviation mean

The normal distribution is completely described by the _______ and ________.

standard deviation

The variance and its square root, the __________ ________, are the most commonly used measures of volatility.

one of the worst years for stock market investors in U.S. history

The year 2008 was:

W x $Y

What will the dividend income be on W number of shares of XYZ stock if XYZ distributes a $Y per share dividend?

10

A dividend yield of 10% says that, for each dollar we invest, we get cents in dividends.

1. US Treasury Bills 2. Long-term corporate bonds 3. Large-company stocks 4. Small-company stocks

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

7.2%

From 1900 to 2010, the average stock market risk premium of the U.S. was ______.

beginning stock price

The dividend yield for a one-year period is equal to the annual dividend amount divided by the ____.

19.8

The standard deviation for large-company stock returns from 1926 to 2017 is:

square root

The standard deviation is the ______ of the variance.

the geometric average the arithmetic average

Two ways of calculating average returns are _______ and _______.

bonds

_______ were a bright spot for U.S. investors during 2008.

$2 x 100

If you receive a $2 dividend per share on your 100 shares, your total dividend income is ____.

optimistic

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

37%

In 2008, the S&P 500 plunged ___ %.

one

In the Ibbotson-Sinquefield studies, U. S. Treasury bill data is based on T-bills with a maturity of _______ month(s).

5

Roger Ibbotson and Rex Sinquefield presented year-to-year historical rates of return on types of financial investments.

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

The Ibbotson SBBI data show that over the long-term, ___.

excess

The ______ rate of return is the difference between the rate of return on a risky asset and the risk-free rate of return.

compare stock returns with the returns on other securities

The average return on the stock market can be used to ___.

capital gains yeild

The percentage change in the price of a stock over a period of time is called its ___________.

2.5%

The probability of an outcome being at least 2 standard deviations below the mean in a normal distribution is approximately:

premium

The risk _________ can be interpreted as the reward for bearing risk.

lower; lower greater; greater

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

capital gains or losses

The total dollar return is the sum of dividends and __________.

dividends; capital gains

The total dollar return on a stock is the sum of the ____ and the _____.

dividends

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

cash

When a company declares a dividend, shareholders generally receive ____.

The mean return The standard deviation of returns

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

-Common stocks frequently experience negative returns. -T-bills sometimes outperform common stocks.

Which of the following are true based on the year-to-year returns from 1926-2014?

The Consumer Price Index (CPI)

Which of the following is commonly used to measure inflation?

95

With a normal distribution, the probability that we end up withing two standard deviations is about ________ percent.