FINC311 CH10
76%
2008 was a bad year for markets worldwide. One of the worst hit was the Icelandic Exchange where shares priced dropped _____ in one day.
an increase in price
A positive capital gain on a stock results from ___.
return
An unrealized gain is treated the same as a realized gain when computing the total ________.
1. Small-company common stock 2. Large-company common stocks 3. Long-term corporate bonds 4. Long-term government bonds U.S. Treasury bills
Arrange the following investments from highest to lowest risk (standard deviation) based on what our study of capital market history from 1926-2014 has revealed as shown in Table 10.3:
smaller than
Geometric averages are usually ______ arithmetic averages.
quite low
Historically, the real return on Treasury bills has been:
a larger
More volatility in returns produces ______ difference between the arithmetic and geometric averages.
apply to any amount invested allow comparison against other investments
Percentage returns are more convenient than dollar returns because they:
initial stock price
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:
compounding
The geometric rate of return takes ______ into account.
variance or standard deviation mean
The normal distribution is completely described by the _______ and ________.
standard deviation
The variance and its square root, the __________ ________, are the most commonly used measures of volatility.
one of the worst years for stock market investors in U.S. history
The year 2008 was:
W x $Y
What will the dividend income be on W number of shares of XYZ stock if XYZ distributes a $Y per share dividend?
10
A dividend yield of 10% says that, for each dollar we invest, we get cents in dividends.
1. US Treasury Bills 2. Long-term corporate bonds 3. Large-company stocks 4. Small-company stocks
Arrange the following investments starting from lowest historical risk premium to highest historical risk premium.
7.2%
From 1900 to 2010, the average stock market risk premium of the U.S. was ______.
beginning stock price
The dividend yield for a one-year period is equal to the annual dividend amount divided by the ____.
19.8
The standard deviation for large-company stock returns from 1926 to 2017 is:
square root
The standard deviation is the ______ of the variance.
the geometric average the arithmetic average
Two ways of calculating average returns are _______ and _______.
bonds
_______ were a bright spot for U.S. investors during 2008.
$2 x 100
If you receive a $2 dividend per share on your 100 shares, your total dividend income is ____.
optimistic
If you use an arithmetic average to project long-run wealth levels, your results will most likely be _______.
37%
In 2008, the S&P 500 plunged ___ %.
one
In the Ibbotson-Sinquefield studies, U. S. Treasury bill data is based on T-bills with a maturity of _______ month(s).
5
Roger Ibbotson and Rex Sinquefield presented year-to-year historical rates of return on types of financial investments.
-small-company stocks generated the highest average return -T-bills, which had the lowest risk, generated the lowest return -small-company stocks had the highest risk level
The Ibbotson SBBI data show that over the long-term, ___.
excess
The ______ rate of return is the difference between the rate of return on a risky asset and the risk-free rate of return.
compare stock returns with the returns on other securities
The average return on the stock market can be used to ___.
capital gains yeild
The percentage change in the price of a stock over a period of time is called its ___________.
2.5%
The probability of an outcome being at least 2 standard deviations below the mean in a normal distribution is approximately:
premium
The risk _________ can be interpreted as the reward for bearing risk.
lower; lower greater; greater
The second lesson from studying capital market history states that the _______ the potential reward, the _______ the risk
capital gains or losses
The total dollar return is the sum of dividends and __________.
dividends; capital gains
The total dollar return on a stock is the sum of the ____ and the _____.
dividends
The two potential ways to make money as a stockholder are through _______ and capital appreciation.
cash
When a company declares a dividend, shareholders generally receive ____.
The mean return The standard deviation of returns
Which of the following are needed to describe the distribution of stock returns?
-Common stocks frequently experience negative returns. -T-bills sometimes outperform common stocks.
Which of the following are true based on the year-to-year returns from 1926-2014?
The Consumer Price Index (CPI)
Which of the following is commonly used to measure inflation?
95
With a normal distribution, the probability that we end up withing two standard deviations is about ________ percent.
