Investment Quiz 1
The capital gains yield is equal to:
(Pt + 1 - Pt)/Pt.
One year ago, you purchased 500 shares of stock at a cost of $10,500. The stock paid an annual dividend of $1.10 per share. Today, you sold those shares for $23.90 each. What is the capital gains yield on this investment?
13.81 percent ($23.90 × 500) - $10,500)] / $10,500 = 13.81 percent
The risk premium is defined as the rate of return on: A. a risky asset minus the risk-free rate. B. the overall market. C. a U.S. Treasury bill. D. a risky asset minus the inflation rate. E.a riskless investment.
A. A risksy asset minus the risk-free rate
Which one of the following statements is correct concerning the dividend yield and the total return? A. The dividend yield can be zero while the total return must be a positive value. B. The total return can be negative but the dividend yield cannot be negative. C. The total return must be greater than the dividend yield. D. .The total return plus the capital gains yield is equal to the dividend yield. E. The dividend yield exceeds the total return when a stock increases in value.
B. the total return can be negative but the dividend yield cannot be negative
An annualized return: A. is less than a holding period return when the holding period is less than one year. B. is expressed as the summation of the capital gains yield and the dividend yield on an investment. C. is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period. D. is computed as (1 + holding period percentage return)^m, where m is the number of holding periods in a year. E. is computed as (1 + holding period percentage return)m, where m is the number of months in the holding period.
D. Is computed as ( 1 + holding period percentage return) ^M, where M is the number of holding periods in a year
Which one of the following is considered the best method of comparing the returns on various-sized investments? A. total dollar return B. real dollar return C. absolute dollar return D. percentage return E. variance return
D. Percentage return
When the total return on an investment is expressed on a per-year basis it is called the:
Effective annual return
Which one of the following should be used to compare the overall performance of three different investments?
Effective annual return
The average compound return earned per year over a multi-year period is called the:
Geometric average return
The dividend yield is defined as the annual dividend expressed as a percentage of the:
Initial stock price
If you multiply the number of shares outstanding for a stock by the price per share, you are computing the firm's:
Market capitallization
A frequency distribution, which is completely defined by its average (mean) and variance or standard deviation, is referred to as a(n):
Normal distribution
The additional return earned for accepting risk is called the:
Risk premium
The risk-free rate is: A. another term for the dividend yield. B. defined as the increase in the value of a share of stock over time. C. the rate of return earned on an investment in a firm that you personally own. D. defined as the total of the capital gains yield plus the dividend yield. E. the rate of return on a riskless investment.
The rate of return on a riskless investment
The standard deviation is a measure of:
Volatility
The total dollar return on a share of stock is defined as the:
capital gain or loss plus any dividend income
The average compound return earned per year over a multi-year period when inflows and outflows are considered is called the:
dollar-weighted average return
The arithmetic average return is the:
return earned in an average year over a multi-year period
The rate of return earned on a US treasury bill is frequently used as a proxy for the:
risk-free rate
When we refer to the rate of return on an investment, we are generally referring to the:
total percentage return
