BFin Ch 10 LS

you buy a stock for $50. its price rises to $55, and it pays a $2 dividend in a year. you do not sell the stock. your dividend yield is:

%4. ($2/%50)

Investments from lowest historical risk premium to highest historical risk premium

1. U.S. Treasury Bills 2. long-term corporate bonds 3. large-company stocks 4. small-company stocks

if a stock's returns for years 1 to 4 were 3% 5% 8% and -2%, what is the standard deviation of those returns?

4.203%

if the arithmetic average return is %10 and the variance of returns is 0.05, find the approximate geometric mean

7.5% (0.10-1/2 * 0.05= 7.5%

The second lesson from studying capital market history states that the ____ the potential reward, the ____ the risk

Less, less; greater, greater

a positive capital gain on a stock results from ____

an increase in price

% returns are more convenient than $ returns because they:

apply to any amount invested, allow comparison against other investments

normal distribution is:

bell-shaped, symmetrical

____ were a bright spot for US investors during 2008

bonds

when a company declares a dividend, shareholders generally receive

cash

historically, there is a ____ relationship between risk and expected return in the financial markets

direct

the ____ rate of return is the difference between the rate of return on a risky asset and the risk-free rate of return

excess

in an efficient market, firms should expect to receive ____ value for securities they sell

fair

the return-risk relationship states that a riskier investment should demand a ____ return

higher

an efficient market is one in which any change in available information will be reflected in the company's stock price ____

immediately

an efficient market is one that fully reflects all available

information

the normal distribution is completely described by the ____ and ____

mean, variance or standard deviation

if you use an arithmetic average to project long-run wealth levels, your results will most likely be ____

optimistic

the standard deviation is the ____ of the variance

square root

two ways of calculating average returns are ____ & ____

the arithmetic average, the geometric average

studying market history can reward us by demonstrating that

there is a reward for bearing risk, the greater the potential reward is, the greater the risk

The efficient markets hypothesis contends that _____ capital markets such as the NYSE are efficient

well organized

ways to make money by investing in stocks:

dividends, capital gains