SMT BK 3-FIN 362

Based on average historical returns shown in the text, small-company stocks increased in value by _____ percent in a typical year.

16%

If the market changes and stock prices instantly and fully reflect new information, which time path does such a change exhibit?

An efficient market reaction

The ratio is calculated as the risk premium of the asset divided by the standard deviation.

Blank 1: Sharpe

Percentage returns are more convenient than dollar returns because they ____.

apply to any amount invested

The dividend yield for a 1-year period is equal to the annual dividend amount divided by the ______.

beginning stock price

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

compare stock returns with the returns on other securities

True or false: The smaller the variance or standard deviation is, the more spread out the returns will be.

False

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

direct

The ______ rate of return is the difference between risky returns and risk-free returns.

excess Reason: The excess rate of return is the difference between risky returns and risk-free returns. The real rate is the nominal rate adjusted for inflation.

In terms of investments, the greater the potential risk, the (lower/greater) should be the expected return.

greater

Normally, the excess rate of return on risky assets is ___.

positive

The excess return on a risky asset is the difference between the risky return and the ____ rate.

risk-free

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

variance

returns tell how much was received for each dollar invested, so they can be applied to any initial investment amount.

Blank 1: Percentage or Percent

The gains yield can be found by taking the difference between the ending stock price and the initial stock price and dividing it by the initial stock price.

Blank 1: capital

The (greater/lower) the risk, the greater the required return.

Blank 1: greater

Mona Corporation has a variance of returns of 343, while Scott Corporation has a variance of returns of 898. Which company's actual returns vary more from their mean return?

Scott Corporation

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

fair

The second lesson from studying capital market history is that risk is _____.

handsomely rewarded

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

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

is highly risky

Historically, the real return on Treasury bills has been _____.

quite low Reason: Historically, the real return on Treasury bills has been quite low, averaging 0.5 percent per year.

The Sharpe ratio measures ___.

reward to risk

Studying market history can reward us by demonstrating that _____.

the greater the potential reward is, the greater the risk on average, investors will earn a reward for bearing risk

Based on the historical returns shown in the text, the average was 2.9 percent per year over the 94-year span depicted.

Blank 1: inflation or inflation rate

The second lesson from capital market history is that there is a direct link between and reward.

Blank 1: risk

The dividend is defined as the annual dividend amount divided by the beginning stock price.

Blank 1: yield or yeild