Chapter 12 (Finance)

Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year.

The historical record for the period 1926-2019 supports which one of the following statements?

project future rates of return.

The primary purpose of Blume's formula is to:

Between 2.8 and 3.2 percent

What was the average rate of inflation over the period of 1926-2019?

2014-2015

Which one of the following time periods is associated with low rates of inflation?

Efficient capital market

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?

ineffective

Evidence seems to support the view that studying public information to identify mispriced stocks is:

Decrease in the 68 percent probability range of returns

If the variability of the returns on large-company stocks were to decrease over the long-term, you would expect which one of the following as related to large-company stocks to occur as a result?

smallest 20 percent of the companies listed on the NYSE.

Small-company stocks, as the term is used in the textbook, are best defined as the:

decreased proportionately with the dividend decrease.

Sung Office Products just announced it is decreasing its annual dividend from $2.20 per share to $1.85 per share effective immediately. If the dividend yield remains at its pre-announcement level, then you know the stock price:

Strong

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient.

4

The average annual return on small-company stocks was about _____ percentage points greater than the average annual return on large-company stocks over the period 1926-2019.

return on a risky security minus the risk-free rate.

The excess return is computed as the:

increase the risk premium.

To convince investors to accept greater volatility, you must:

The capital gains yield is positive.

Vanessa purchased a stock one year ago and sold it today for $3.15 per share more than her purchase price. She received a total of $2.60 per share in dividends. Which one of the following statements is correct in relation to this investment?

Weak

Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst?

U.S. Treasury bills

Which one of the following had the least volatile annual returns over the period of 1926-2019?

Normal distribution

Which one of the following is defined by its mean and its standard deviation?

U.S. Treasury bills had an annual return in excess of 10 percent in three or more years.

Which one of the following statements is a correct reflection of the U.S. financial markets for the period 1926-2019?

Long-term government bonds had more volatile annual returns than did the long-term corporate bonds.

Which one of the following statements is correct based on the period 1926-2019?

Semistrong

You are aware that your neighbor trades stocks based on confidential information he overhears at his workplace. This information is not available to the general public. This neighbor often comments on the profits he earns on these trades. Given this, you would tend to argue that the financial markets are at best _____ form efficient.

Risk premium

Assume that last year T-bills returned 2.2 percent while your investment in large-company stocks earned an average of 8.1 percent. Which one of the following terms refers to the difference between these two rates of return?