Fin 450-Ch. 10 Learn smart

You bought one share of stock for $100 and received $2 dividend. If the price of the stock rose to $103, then your total dollar return would be

$103-100+2= $5

What will the dividend income be on 1,000 shares of XYZ stock if XYZ distribues a .20 per share dividend

$200

Suppose you buy a share of stock for $100. At the end of one year the stock price is $114 and a $1 dividend is paid. If you do not sell the stock, your total annual return is?

($114-$100+1)/$100= 15%

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?

($144-$100+$1)/$100= 15%

If the annual stock market returns for Berry Company were 19 percent, 13 percent, and -8 percent, what was the arithmetic mean for those 3 years?

(.19 + .13 - .08)/3= 8%

If stock ABC has a mean return of 10 percent with a standard deviation of 5 percent, then the probability of earning a negative return is approximately ___ percent.

(1-.68)/2=16%

Suppose you bought 100 shares of Banks & Bower, Inc. for $50 a share. During the year, B&B paid a $0.50 per share dividend. At year end, B&B was selling for $60 a share. What is your total percentage return?

(60-50+.50)/50= 21%

What is the arithmetic average return for stock that had annual returns of 8%, 2%, and 11% for the past 3 years?

(8% + 2% + 11%)/3= 7%

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

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

-Capital gains -Dividends

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

-Common stocks frequently experience negative returns -T-bills sometimes outperform common stocks

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

-The mean return -The standard deviation of returns

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

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

.10- .05/2= .075 or 7.5%

Which investments from highest risk to lowest based on 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 common stock 3. long-term corporate bonds 4. long-term government bonds 5. U.S. treasury bills

Investments starting 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-Sinquefield's long-term U.S. government bond portfolio had maturities of ___ years.

20 years

The standard deviation for large company stocks returns from 1926-2014 is

20.1%

The probability of a return being + or - one standard deviation of the mean in a normal distribution is approximately _____%

68%

From 1900-2010, the average stock market risk premium of the U.S. was

7.2%

If a series of stock returns has a variance of 0.0068, what is the standard deviation?

8.246%

______ were a bright spot for U.S. investors during 2008

Bonds

Which is most commonly used to measure inflation?

The Consumer Price Index (CPI)

In an efficient market ______ investments have a ______ NPV

all;zero

The percentage change in the price of stock over a period of time is called its

capital gain yield

The total dollar return is the sum of dividends and

capital gains or losses

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

ending stock price

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

excess

The capital gains 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 ______ months

one

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

optimistic

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

pessimistic

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

The excess return is the difference between the rate of return on a risky asset and the _____ rate

risk-free

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

small-company common stock

The standard deviation is the ______ of the variance

square root

The geometric average rate of return is approximately equal to ____

the arithmetic mean minus half of the variance