ch. 10 smartbook (fin)
If you receive a $2 dividend per share on your 100 shares, your total dividend income is
$2 x 100
% returns are better to use for comparisons versus $ returns because...
% terms don't depend on the amount you invest
capital gains yield
(Pt+1 - Pt)/Dt
The ibbotson-sinquefield data show that
*long-term corporate bonds had less risk or variability than stocks *U.S. T-bills had the lowest risk or variability
Lowest historical risk premium to highest historical risk premium
1.) Us Treasury bills 2.) long-term corp bonds 3.) large- company stocks 4.) small-company stocks
The arithmetic mean for large-company stock returns from 1926 to 2021 is
12.2%
Bonds used in Ibbotson SBBI long-term U.S gov't bond portfolio had maturities of ___ years
20
The probability of a return being within one standard deviation of the mean in a nominal distribution is approximately _____ percent
68
With a normal distribution, the probability that we end up withing two standard deviations is about ______ percent.
95
The arithmetic rate of return measures the return in an average year over
A given period
Total Return
An unrealized gain is treated the same as a realized gain
Some important characteristics of the normal distribution are that it's
Bell-shaped + symmetrical
The % change in the price of a stock over a period of time is called it's
Capital gain yield
Total return % =
Dividend yield + capital gains yield
Two potential ways for a stockholder to make $ is through _____ and capital apperciation
Dividends
Dividend yield =
Dt+1/Pt
In the Ibbotson-Sinquefield studies, US Treasury bill data is based on T-bills with a maturity of
One month
T-bills sometimes
Outperform common stocks
If you use a geometric average to project short-run wealth levels, your results will be
Pessimistic
Who conducted a famous set of studies dealing with rates of return in US Financial markets?
Roger Ibbotson + Rex Sinquefield
Geometric averages are usually ______ arthimetic averages
Smaller than
The variance and it's square root, the ___ ____ are the most commonly used measures of volatility
Standard deviation
Which of the following are true based on the year-to-year returns from 1926 to 2021?
T-bills sometimes outperform common stocks. Common stocks frequently experience negative returns.
The capital gains yield can be found by finding the difference between
The ending stock price + inital stock price and dividing it by the inital stock price
What's needed to describe the distribution of stock returns?
The mean return The standard deviation of returns
What is needed to describe the distribution of stock returns?
The standard deviation of returns The mean return
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
Consumer Price Index (CPI)
Used to measure inflation
What will the dividend income be on W number of shares of XYZ stock if XYZ distributes a $Y per share dividend?
W x $Y
A positive capital gain on a stock results from ___.
an increase in price
Percentage returns are more convenient than dollar returns because they:
apply to any amount invested allow comparison against other investments
To compute the _______ return, the yearly returns are summed and then divided by the number of returns.
average
The dividend yield for a one-year period is equal to the annual dividend amount divided by the
beginning stock price
When a company declares a dividend, shareholders generally receive ____.
cash
The average return on the stock market can be used to
compare stock returns with the returns on other securities
The geometric rate of return takes ____ into account
compounding
Historically, there is a ________ relationship between risk and expected return in the financial markets
direct
Total dollar return =
dividend income + capital gain (or loss)
The _____ rate of return is the difference between the rate of return on a risky asset and the risk-free rate of return
excess
Roger Ibbotson and Rex Sinquefield presented year-to-year historical rates of return on ______ types of financial investments.
five
Dividends are the ______ component of the total return from investing in a stock.
income
An efficient market is one that fully reflects all available ______.
information
If the dispersion of returns on a particular security is very spread out from the security's mean return, the security ____.
is highly risky
Without any other information, you can use the average return from a time period as a "best guess"
of the return in a given year from that same period
Normally, the excess rate of return is ___.
positive
Historically, the real return on Treasury bills has been:
quite low
The Ibbotson SBBI data show that over the long-term, ___.
small-company stocks generated the highest average return small-company stocks had the highest risk level T-bills, which had the lowest risk, generated the lowest return
The geometric average rate of return is approximately equal to
the arithmetic mean minus half of the variance
Two ways of calculating average returns are _______ and _______.
the geometric average the arithmetic average
The square of the standard deviation is equal to the
variance
The normal distribution is completely described by the ____ and _____
variance or standard deviation mean