Chapter 10-13

If you buy 40 shares of BP stock at $35 per share, your total investment in BP is Blank______.

$1,400 Reason: Correct. 40 × $35 = $1,400.

What will the dividend income be on 1,000 shares of XYZ stock if XYZ distributes a $0.20 per share dividend?

$200 Reason: Correct. $0.20 × 1,000 = $200.

You bought one share of stock for $100 and received a $2 dividend. If the price of the stock rose to $103, then your total dollar return would be Blank______.

$5 $103 − 100 + 2 = $5.

If you buy 100 shares of ABC stock at $5 per share, your total investment is Blank______.

$500 100 × $5 = $500.

The price of XYZ stock rises from $10 to $15. If you own 100 shares, your capital gain is Blank______.

$500 Reason: Correct. ($15 − 10) × 100 = $500.

The price of a stock drops from $50 to $40 per share. If you own 50 shares, your total capital loss is Blank______.

$500 Reason: Correct. ($40 − 50) × 50 = $500.

What will your capital gain be if you hold 40 shares of BP stock and the stock price rises from $27 to $40 a share?

$520 40 × ($40 − 27) = $520.

What is the maximum capital loss that you can incur if you bought 200 shares of TP Inc. for $32?

$6,400 The maximum loss occurs when the stock price falls to $0.

Bonds used in Ibbotson SBBI's long-term U.S. government bond portfolio had maturities of Blank______ years.

20 Reason: Correct. Bonds used in Ibbotson SBBI long-term U.S. government bond portfolio had maturities of 20 years.

The Ibbotson SBBI small-company stock portfolio includes the bottom Blank______ of NYSE-listed stocks.

20 percent Reason: Correct. The Ibbotson SBBI small stock portfolio includes the bottom 20 percent of NYSE-listed stocks.

Total return on investment

Rt+1 = (Dt+1/Pt) + (Pt+1 -Pt) / Pt WHere Dt+1 = dividend paid during year Pt = stock price @ beginning of year

Long term US government bonds (ibbotson)

based on US Government bonds with maturities of 20 years

US Treasury bills (Ibbotson)

based on treasury bills (T-Bills for short) with a one month maturity

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

cash Shareholders generally receive cash when a company declares a dividend.

total dollar return

dividend income + capital gain or loss

Dividend yield

dividend price / stock price at beg of year

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

dividends (Dividend is a way to make money by investing in stocks) capital gains (Capital gain is a way to make money by investing in stocks.)

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

dividends; capital gains Correct. Total dollar return = dividend income + capital gain.

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

excess

The ________ period rate of return is the rate of return over some arbitrary investment period.

holding

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 Blank______.

initial stock price Reason: Correct. 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.

The Ibbotson SBBI data shows that _____.

long-term government bonds had less risk or variability than stocks T-bills had the lowest risk or variability

Using the Ibbotson SBBI yearbook, year-by-year real returns can be calculated by Blank______.

subtracting the annual inflation rate from the annual historical rate of return Reason: Correct. Using the Ibbotson SBBI yearbook, year-by-year real returns can be calculated by subtracting the annual inflation rate from the annual historical rate of return.

The rates of return in the Ibbotson SBBI yearbook are not adjusted for which of the following?

taxes Reason: Correct. Taxes are not adjusted for bond coupons. transactions costs Reason: Correct. Transactions costs are not adjusted for bond coupons.

A frequency distribution of stock returns displays Blank______.

various ranges of returns on the horizontal axis Reason: A frequency distribution of stock returns displays various ranges of returns on the horizontal axis. the frequency of occurrence for each rate of return range Reason: A frequency distribution of stock returns displays the frequency of occurrence for each rate of return range.

Value

$investment * (1+R1) * (1+r2) * (1=R3) *..... (1+Rt)

If your total dollar return was $7 and your dividend was $2, then the price change on your stock must have been Blank______.

+$5 total dollar return = Dividend + capital gain. 7 = 2 + capital gain. Capital gain = 5.

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

14% ($114 − 100)/$100 = 14%.

In the Ibbotson study, a long-term corporate bond is a portfolio of high-quality corporate bonds with a maturity of Blank______.

20 years

If the dividend paid over the past year was $2.25 and the beginning stock price was $42 per share, what is the dividend yield?

5.4% 2.25/42 = 0.05357 Dt+1 / Pt

In the Ibbotson and Sinquefield study, the large-company common stock portfolio consists of 500 companies with the largest ________ Value

Market

The Ibbotson SBBI small-company stock portfolio includes the bottom 20 percent of Blank______-listed stocks.

NYSE

Long Term Corporate bonds (Ibbotson)

Portfolio of high quality of corporate bonds with 20 year maturities

In the Ibbotson study, the large-company common stock portfolio is based on the Blank______.

Standard & Poor's Composite Index . In the Ibbotson study, the large-company common stock portfolio is based on the S&P Composite Index.

The Ibbotson SBBI data shows that over the long-term, Blank______.

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

Frequency distribution

The organization of data to show how often certain values or ranges of values occur.

Holding period return

The rate of return over a given period.

+$5 Reason: Correct. Total dollar return = Dividend + capital gain. 7 = 2 + capital gain. Capital gain = 5.

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

Capital gain (or loss)

change in the price of stock divided by the initial price The positive change in the value of an asset. A negative capital gain is a capital loss

Large company common stock (Ibbotson)

common stock portfolio based on Standard & poors (S&P) 500 which contains the largest (in terms of market value) companies in the United States

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

compare stock returns with the returns on other securities The historical average can be used to compare stock returns with the returns on other securities.

Small company common stock (Ibbotson)

portfolio composed of stock corrosponding to the smallest 20% percent of the companies listed on NYSE, measured by market value of outstanding stock

Ibbotson and rex sinquefield study

presents year by year historical rates of return on five important types of financial instruments in the US. 1. Large company common stocks 2. small company common stocks 3. long term corporate bonds 4. Long term US government bonds 5. US Treasury Bills