Question 1

The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2007.

Accepted Answer

A)  3
B)  5
C)  7
D)  9
E)  11F) A) and B)
G) A) and C)

Question 2

West Wind Tours stock is currently selling for $48 a share. The stock has a dividend yield of 2.6 percent. How much dividend income will you receive per year if you purchase 200 shares of this stock?

Accepted Answer

A)  $24.96
B)  $36.20
C)  $124.80
D)  $362.00
E)  $249.60F) A) and B)
G) None of the above

Question 3

Last year, you purchased a stock at a price of $47.10 a share. Over the course of the year, you received $2.40 per share in dividends while inflation averaged 3.4 percent. Today, you sold your shares for $49.50 a share. What is your approximate real rate of return on this investment?

Accepted Answer

A)  6.30 percent
B)  6.79 percent
C)  7.18 percent
D)  9.69 percent
E)  10.19 percentF) A) and D)
G) B) and C)

Question 4

Which of the following statements related to market efficiency tend to be supported by current evidence?
I. Markets tend to respond quickly to new information.
II. It is difficult for investors to earn abnormal returns.
III. Short-run prices are difficult to predict accurately based on public information.
IV. Markets are most likely weak form efficient.

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I and IV only
D)  I, III, and IV only
E)  I, II, and III onlyF) B) and D)
G) None of the above

Question 5

A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Accepted Answer

A)  0.1 percent
B)  0.5 percent
C)  1.0 percent
D)  2.5 percent
E)  5.0 percentF) A) and B)
G) D) and E)

Question 6

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

Accepted Answer

A)  average rate of return
B)  volatility
C)  probability
D)  risk premium
E)  real returnsF) A) and B)
G) C) and D)

Question 7

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.

Accepted Answer

A)  weak
B)  semiweak
C)  semistrong
D)  strong
E)  perfectF) C) and D)
G) A) and B)

Question 8

You own 400 shares of Western Feed Mills stock valued at $51.20 per share. What is the dividend yield if your annual dividend income is $352?

Accepted Answer

A)  1.68 percent
B)  1.72 percent
C)  1.83 percent
D)  1.13 percent
E)  1.21 percentF) A) and D)
G) B) and E)

Question 9

Your friend is the owner of a stock which had returns of 25 percent, -36 percent, 1 percent, and 16 percent for the past three years. Your friend thinks the stock may be able to achieve a return of 50 percent or more in a single year. Based on these returns, what is the probability that your friend is correct?

Accepted Answer

A)  less than 0.5 percent
B)  greater than 0.5 percent but less than 1.0 percent
C)  greater than 1.0 percent but less than 2.5 percent
D)  greater than 2.5 percent but less than 16 percent
E)  greater than 16.0 percentF) B) and C)
G) B) and D)

Question 10

Which one of the following statements best defines the efficient market hypothesis?

Accepted Answer

A)  Efficient markets limit competition.
B)  Security prices in efficient markets remain steady as new information becomes available.
C)  Mispriced securities are common in efficient markets.
D)  All securities in an efficient market are zero net present value investments.
E)  Profits are removed as a market incentive when markets become efficient.F) B) and C)
G) C) and D)

Question 11

Which one of the following statements is correct based on the historical record for the period 1926-2007?

Accepted Answer

A)  The standard deviation of returns for small-company stocks was double that of large-company stocks.
B)  U.S.Treasury bills had a zero standard deviation of returns because they are considered to be risk-free.
C)  Long-term government bonds had a lower return but a higher standard deviation on average than did long-term corporate bonds.
D)  Inflation was less volatile than the returns on U.S.Treasury bills.
E)  Long-term government bonds underperformed intermediate-term government bonds.F) B) and C)
G) C) and D)

Question 12

Individuals who continually monitor the financial markets seeking mispriced securities:

Accepted Answer

A)  earn excess profits over the long-term.
B)  make the markets increasingly more efficient.
C)  are never able to find a security that is temporarily mispriced.
D)  are overwhelmingly successful in earning abnormal profits.
E)  are always quite successful using only historical price information as their basis of evaluation.F) B) and C)
G) D) and E)

Question 13

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. Which one of the following terms best defines that market?

Accepted Answer

A)  riskless market
B)  evenly distributed market
C)  zero volatility market
D)  Blume's market
E)  efficient capital marketF) C) and D)
G) B) and E)

Question 14

A stock had returns of 11 percent, -18 percent, -21 percent, 5 percent, and 34 percent over the past five years. What is the standard deviation of these returns?

Accepted Answer

A)  18.74 percent
B)  20.21 percent
C)  20.68 percent
D)  22.60 percent
E)  23.49 percentF) A) and D)
G) A) and B)

Question 15

You find a certain stock that had returns of 4 percent, -5 percent, -15 percent, and 16 percent for four of the last five years. The average return of the stock for the 5-year period was 13 percent. What is the standard deviation of the stock's returns for the five-year period?

Accepted Answer

A)  21.39 percent
B)  24.98 percent
C)  27.16 percent
D)  31.23 percent
E)  34.02 percentF) B) and C)
G) A) and E)

Question 16

One year ago, you purchased 500 shares of Best Wings, Inc. stock at a price of $9.60 a share. The company pays an annual dividend of $0.10 per share. Today, you sold all of your shares for $15.60 a share. What is your total percentage return on this investment?

Accepted Answer

A)  38.46 percent
B)  39.10 percent
C)  39.72 percent
D)  62.50 percent
E)  63.54 percentF) B) and C)
G) B) and E)

Question 17

The common stock of Air United, Inc., had annual returns of 15.6 percent, 2.4 percent, -11.8 percent, and 32.9 percent over the last four years, respectively. What is the standard deviation of these returns?

Accepted Answer

A)  13.29 percent
B)  14.14 percent
C)  16.50 percent
D)  17.78 percent
E)  19.05 percentF) B) and E)
G) A) and C)

Question 18

Which one of the following is most indicative of a totally efficient stock market?

Accepted Answer

A)  extraordinary returns earned on a routine basis
B)  positive net present values on stock investments over the long-term
C)  zero net present values for all stock investments
D)  arbitrage opportunities which develop on a routine basis
E)  realizing negative returns on a routine basisF) A) and D)
G) A) and C)

Exam 12: Some Lessons From Capital Market History

Last year, you purchased a stock at a price of $47.10 a share. Over the course of the year, you received $2.40 per share in dividends while inflation averaged 3.4 percent. Today, you sold your shares for $49.50 a share. What is your approximate real rate of return on this investment?

Correct Answer
verified

You find a certain stock that had returns of 4 percent, -5 percent, -15 percent, and 16 percent for four of the last five years. The average return of the stock for the 5-year period was 13 percent. What is the standard deviation of the stock's returns for the five-year period?

Correct Answer
verified

Correct Answer
verified

A stock had returns of 11 percent, -18 percent, -21 percent, 5 percent, and 34 percent over the past five years. What is the standard deviation of these returns?

Correct Answer
verified

One year ago, you purchased 500 shares of Best Wings, Inc. stock at a price of $9.60 a share. The company pays an annual dividend of $0.10 per share. Today, you sold all of your shares for $15.60 a share. What is your total percentage return on this investment?

Correct Answer
verified

A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Correct Answer
verified

West Wind Tours stock is currently selling for $48 a share. The stock has a dividend yield of 2.6 percent. How much dividend income will you receive per year if you purchase 200 shares of this stock?

Correct Answer
verified

The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2007.

Correct Answer
verified

Which one of the following statements is correct based on the historical record for the period 1926-2007?

Correct Answer
verified

Correct Answer
verified

The common stock of Air United, Inc., had annual returns of 15.6 percent, 2.4 percent, -11.8 percent, and 32.9 percent over the last four years, respectively. What is the standard deviation of these returns?

Correct Answer
verified

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. Which one of the following terms best defines that market?

Correct Answer
verified

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

Correct Answer
verified

Which one of the following statements best defines the efficient market hypothesis?

Correct Answer
verified

You own 400 shares of Western Feed Mills stock valued at $51.20 per share. What is the dividend yield if your annual dividend income is $352?

Correct Answer
verified

Which one of the following is most indicative of a totally efficient stock market?

Correct Answer
verified

Correct Answer
verified

Individuals who continually monitor the financial markets seeking mispriced securities:

Correct Answer
verified

Exam 12: Some Lessons From Capital Market History

Last year, you purchased a stock at a price of $47.10 a share. Over the course of the year, you received $2.40 per share in dividends while inflation averaged 3.4 percent. Today, you sold your shares for $49.50 a share. What is your approximate real rate of return on this investment?

Correct AnswerverifiedShow Answer

You find a certain stock that had returns of 4 percent, -5 percent, -15 percent, and 16 percent for four of the last five years. The average return of the stock for the 5-year period was 13 percent. What is the standard deviation of the stock's returns for the five-year period?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A stock had returns of 11 percent, -18 percent, -21 percent, 5 percent, and 34 percent over the past five years. What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

One year ago, you purchased 500 shares of Best Wings, Inc. stock at a price of $9.60 a share. The company pays an annual dividend of $0.10 per share. Today, you sold all of your shares for $15.60 a share. What is your total percentage return on this investment?

Correct AnswerverifiedShow Answer

A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Correct AnswerverifiedShow Answer

West Wind Tours stock is currently selling for $48 a share. The stock has a dividend yield of 2.6 percent. How much dividend income will you receive per year if you purchase 200 shares of this stock?

Correct AnswerverifiedShow Answer

The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2007.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct based on the historical record for the period 1926-2007?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The common stock of Air United, Inc., had annual returns of 15.6 percent, 2.4 percent, -11.8 percent, and 32.9 percent over the last four years, respectively. What is the standard deviation of these returns?

Correct AnswerverifiedShow Answer

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. Which one of the following terms best defines that market?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following statements best defines the efficient market hypothesis?

Correct AnswerverifiedShow Answer

You own 400 shares of Western Feed Mills stock valued at $51.20 per share. What is the dividend yield if your annual dividend income is $352?

Correct AnswerverifiedShow Answer

Which one of the following is most indicative of a totally efficient stock market?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Individuals who continually monitor the financial markets seeking mispriced securities:

Correct AnswerverifiedShow Answer

Correct Answer
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