Exam 3: Chapter 10

Match each information type to the form of market efficiency that identifies that type of information as being quickly and accurately reflected in stock prices

1) All Information=> Strong form efficiency 2) All Public Information=> Semi-strong form efficiency 3) Historical Stock Prices=> Weak form efficiency

Percentage returns are more convenient than dollar returns because they:

1) Apply to any amount invested 2) Allow comparison against other investments

Some important characteristics of the normal distribution are that it is:

1) Bell-shaped 2) Symmetrical

Which of the following are ways to make money by investing in stocks?

1) Capital Gains 2) Dividends

The second lesson from studying capital market history states that the ________ the potential reward, the _______ the risk.

1) Less; Less 2) Greater; Greater

Arrange the following investments from highest to lowest risk (standard deviation) based what our study of capital market history from 1926-2014 has revealed as shown in Table 10.3:

1) Small-Company common stock 2) Large Company Stock 3) Long-term corporate bonds 4) Long-Term government bonds 4) U.S treasury bills

Which of following are rue based on the year-to year returns from 1926-2014?

1) T-Bills sometimes outperform common stocks 2) Common stocks frequently experience negative returns

Two ways of calculating average returns are ______ and _______.

1) The geometric average 2) The arithmetic average

Which of the following are needed to describe the distribution of stock returns?

1) The standard deviation of returns 2) The mean return

The Ibbotson-Sinquefield data shows that:

1) U.S T-Bills had the lowest risk or variability 2) Long-term corporate had less risk or variability than stocks

Arrange the following 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

Bonds used in Ibbotson SBBI long-term U.S government bond portfolio had maturities of ______ years.

20

In 2008. The S&P 500 plunged ___%

37%

More volatility in returns produces _________ difference between the arithmetic and geometric averages.

A larger

A positive capital gain on a stock results from _____.

An increase in price

The dividend yield for a one-year period is equal to the annual dividend amount divided by the ______.

Beginning stock price

______ were a bright spot for U.S Investors' during 2008.

Bonds

If you buy a stock for $10 and later sell it for $16, you will have a ______.

Capital gain of $6

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 return on other securities

The geometric rate of return takes ______ into account.

Compounding

Historically, there is a(n) ________ relationship between risk and expected return in the financial markets.

Direct

The two potential ways to make money as a stockholder are through _______ and capital appreciation.

Dividends

The total dollar return on a stock is the sum of the ____ and the _____.

Dividends; Capital Gains

In an efficient market, firms should expect to receive _____ value for securities they sell.

Fair

Roger Ibbotson and Rex Sinquefield presented year-to-year historical rates of return on _____ important types of financial investments.

Five

In 2008, the prices on long-term U.S. Treasury Bonds ________.

Gained 40%

The second lesson from studying capital market history is that risk is:

Handsomely rewarded

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

Stock prices fluctuate from day to day because of:

Information flow

The capital gain yield can be found by finding the difference between the ending stock price and the initial stock price and dividing it by the:

Initial stock price

If the dispersion of returns on a particular security is very spread out from the security's mean return, the security _______.

Is highly risky

In the Ibbotson-Sinquefield studies, U.S treasury bill data is based on T-Bills with a maturity of ________ month(s).

One

The year 2008 was:

One of the worst years for stock market investors in U.S. history

If you use an arithmetic average to project long-run wealth levels, your results will most likely be _________.

Optimistic

Which type of stock price adjustment time path occurs when there is a bubble (price run up) in the path followed by a decline after the market receives information about the stock?

Overreaction and correction

If you use a geometric average to project short-run wealth levels, your results will most likely be _______.

Pessimistic

Normally, the excess rate of return is _____.

Positive

Historically, the real return on Treasury bills has been:

Quite low

The arithmetic average rate of return measures the ______.

Return in an average year over a given period

Using capital market history as a guide, it would appear the greatest reward would come from investing in _______.

Small-company common stock

Which of the following is commonly used to measure inflation?

The Consumer Price Index (CPI)

The geometric average rate of return is approximately equal to _____.

The arithmetic mean minus half of the variance

True or False: The risk premium can be interpreted as a reward for bearing risk

True

The square of the standard deviation is equal to the ______.

Variance

If a study of past stock prices and volume to find miss-priced securities will not lead to gains in the market, then the market must be at least _____ efficient.

Weak-form

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

Well-Organized