FIN 357 Ch 12
If stock ABC has a mean return of 10% with a standard deviation of 5%, then the probability of earning a return greater than 15% is about ____________%.
(0.10-(2 * 0.05) 0% -> 2 SDs below the mean 0.05/2 == 2.5%
which of the following is commonly used to measure inflation?
Consumer price index (CPI)
the dividend yield for a 1-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 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
Palmer Company had the following returns: 2009: 12% 2010: 10% 2011: -8% 2012: 4% 2013: 22% What is the variance of Palmer's returns?
mean return = .08 variance ((.12-.08)^2 + (.1-.08)^2... ) / (5-1) = .0122
normally the excess rate of return on risky assets is ____
positive
a share of common stock currently sells for $100 and will pay a dividend of $2 at the end of the year. If the price is expected to increase to $113 at the end of one year, what is the stock's current dividend yield?
year end dividend paid / current share price = $2/$100 2%
You buy a stock for $100. In one year its price rises to $114, and it pays a $1 dividend. Your capital gains yield is_____
(ending stock price - initial stock price) / initial stock price (114 - 100) / 100 = 14%
you buy a stock for $50. After one year, its price rises to $55, and it pays a $2 dividend... you do not sell the stock. your capital gains yield is _____
(ending stock price - initial stock price) / initial stock price (55 - 50) / 50 = 10%
in an efficient market:
- All investments have NPV=0 - Assets are priced at the present value of their future cash flows
which of the following are ways to make money by investing in stocks?
- capital gains - dividends
the ibbotson-sinquefield data shows that ____
- long-term corporate bonds had less risk or variability than stocks - U.S. T-bills had the lowest risk or variability
Studying market history can reward us by demonstrating that:
- on average, investors will earn a reward for bearing risk - the greater the potential reward, the greater the risk
One year ago, Ernie purchased shares of RTF common stock for $100 a share. Today the stock paid a dividend of $1 per share. If the stock currently sells for $114 per share, what is Ernie's total return?
15% (114 - 100 +1) / 100 OR [(144 - 100) / 100] + 1/100 = 14% + 1% = 15%
Palmer Company had the following returns: 2009: 12% 2010: 10% 2011: -8% 2012: 4% 2013: 22% What is the standard deviation of Palmer's return?
mean return = .08 variance ((.12-.08)^2 + (.1-.08)^2... ) / (5-1) = .0122 sd = (.0122)^1/2 = .11045
Mona Corporation has a variance of returns of 343, while Scott Company has a variance of returns of 898. Which company's actual returns vary more from their mean return?
scott corporation
