finance ch. 12

Standard deviation is a measure of which one of the following?

Volatility

What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?

16 percent

For the period 1926-2016, the average risk premium on large-company stocks was about:

8.6 percent

Which one of the following statements is correct concerning market efficiency?

A firm will generally receive a fair price when it issues new shares of stock if the market is efficient.

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?

Efficient capital market

Which one of the following earned the highest risk premium over the period 1926-2016?

Small-company stocks

Stacy purchased a stock last year and sold it today for $4 a share more than her purchase price. She received a total of $1.15 per share in dividends. Which one of the following statements is correct in relation to this investment?

The capital gains yield is positive.

Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst?

Weak

The average compound return earned per year over a multiyear period is called the ________ average return.

geometric

To convince investors to accept greater volatility, you must:

increase the risk premium.

Which one of the following is defined by its mean and its standard deviation?

Normal distribution

Which one of the following best defines the variance of an investment's annual returns over a number of years?

The average squared difference between the actual returns and the arithmetic average return

Which one of the following is the most likely reason why a stock price might not react at all on the day that new information related to the stock's issuer is released? Assume the market is semistrong form efficient.

The information was expected.

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2016?

U.S. Treasury bills

You are aware that your neighbor trades stocks based on confidential information he overhears at his workplace. This information is not available to the general public. This neighbor continually brags to you about the profits he earns on these trades. Given this, you would tend to argue that the financial markets are at best ________ form efficient.

semistrong

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than ________ form efficient.

strong