FIN3403 Chapter 12 Conceptual

What is the probability that small-company stocks will produce an annual return that is more than one sd below the avg

16 percent

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

2010-2013

The avg annual return on a small-company stocks was about ___ percent greater than the avg annual return on a large-company stock over the period 1926-2013

5

based on the period 1926-2013, the actual real return on large-company stocks has been around

8.3 percent

Which of the following is correct ranking of securities based on volatility of their annual returns over the period of 1926-2013; highest to lowest

Long-term gov bonds, long-term corporate bonds, intermediate term gov bonds

Which of the following categories of securities had the lowest avg risk premium for the period 1926-2013

US treasury bills

Which of the following had the least volatile annual returns over the period of 1926-2013

US treasury bills

Which of the following statements correctly applies to the period 1926-2013

US treasury bills had a positive avg real rate of return

Which of the following statements is a correct reflection of the US markets for the period 1926-2013

US treasury bills provide a positive rate of return each and every year during the period

Which of the following statements is correct concerning market efficiency

a firm will generally receive a fair price when it issues new shares of stock if the market if efficient

Which of the following statements best defines the efficient market hypothesis

all securities in an efficient market are zero npv investments

Which of the following statements related to capital gains is correct

an increase in an unrealized capital gain will increase the capital gains yield

The return earned in an avg year over multiyear period is called the ____ avg return

arithmetic

What was the highest annual rate of inflation during the period 1926-2013

between 15 and 20 percent

What was the avg rate of inflation over the period 2916-2013

between 2.8 and 3.2

Assume you invest in a portfolio of US treasury bills and that the portfolio will earn a rate of return similar to the avg return on US treasury bills for the period 1926-2013. What rate of return should you expect to earn

between 3 to 4 percent

Which of the following statements are true based on the historical record for 1926-2013

bonds are generally a safer investment than are stocks

Which of the following yields on a stock can be negative

capital gains yield and total return

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

decrease in the 68 percent probability range of returns

Bayside marina just announced it is decreasing its annual dividend from 1.64 per share to 1.5 per share effective immediately. If the dividend yield remains at its pre-announcement level, then you know the stock price is

decreased proportionately with the dividend decrease

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

efficient capital market

the average compound return earned per year over a multiyear period is called the _____ avg return

geometric

Generally speaking, which of the following most correspond to a wide frequency distribution: low risk, low return, high sd, large risk prem

high standard deviation and large risk prem

To convince investors to accept volatility, you must

increase the risk premium

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

ineffective

As long as the inflation rate is positive, the real rate of return on a security will be ____ the nominal rate of return

less than

Which of the following statements is correct based on the historical record for the period 1926-2013

long-term government bonds had a lower return but a higher sd on avg than did long-term corporate bonds

Which of the following statements is correct based on the period of 1926-2013

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

Individual investors who continually monitor the financial markets seeking mispriced securities

make the markets increasingly more efficient

Which of the following statements related to market efficiency tends to be supported by current evidence

markets tend to respond quickly to new info

The real rate of return on a stock is approximately equal to the nominal rate of return

minus the inflation rate

Which of the following correctly describes the dividend yield?

next year's annual dividend divided by today's stock price

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

normal distribution

Estimates of the rate of return on a security based on the historical arithmetic average will probably tend to ___ the expected return for the long-term and estimates using the historical geometric average will probably tend to ____ the expected return for the short-term

overestimate, underestimate

The primary purpose of Blume's formula is to

project future rates of return

The excess return is computed as the

return on a risky security minus the risk-free rate

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which of the following terms refers to the difference between these two rates of return

risk premium

you are aware that your neighbor trades stocks based on confidential info

semi strong form efficient

Which of the following categories of securities had the highest average return for the period 1926-2013

small company stocks

Which of the following earned the highest risk premium over the period 1926-2013

small company stocks

the historical record for the period 1926-2013 supports which of the following statements

small company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year

Which of the following categories of securities had the most volatile annual returns over the period 1926-2013

small-company stocks

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

smallest twenty percent of the firms listed on the NYSE

Inside info has the least value when financial markets are

strong form efficient

The US 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

strong form efficient

Which of the following statements concerning us t bills is correct for the period 1926-2013

the annual rate of return was always positive

Which one of the following best defines the variance of an investment's annual returns over a number of years

the avg squared difference between the actual returns and the arithmetic avg returns

Stacey purchased a stock last year and sold it today for 3 dollars a share more than her purchase price. She received a total of .75 in dividends. Which of the following statements is correct in relation to this investment

the capital gains yield is positive

Which of the following is most likely the reason why a stock price might not react at all on the day that new info related to the stock's issuer is released? Assume the market is semi strong form efficient

the information was expected

Efficient financial markets fluctuate continuously because

the markets are continually reacting to new info

SD is a measure of which of the following

volatility

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

weak

Which of the following is most indicative of a totally efficient stock market

zero net present values for all stock investments