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Exam 12: Lessons From Capital Market History

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Question 101

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The square of the standard deviation is called the:

A) Risk premium.
B) Average rate of return.
C) Excess return.
D) Variance.
E) Probability range.

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Question 102

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Stocks of small companies have higher average returns than those of larger companies.

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Question 103

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The common stock of Petersen and White Importers yielded returns of 42%, -5%, -18%, 9%, and 12% over the past 5 years, respectively. The arithmetic average return for this period of time is _____% while the geometric average return is _____%.

Six months ago, you purchased 50 shares of stock in First Place Co. at a price of $41.68 a share. First Place stock pays a quarterly dividend of $.40 a share. Today, you sold all of your shares for $44.12 per share. What is the total amount of your dividend income on this investment?

Given the following returns, what is the variance? Year 1 = 15%; year 2 = 3%; year 3 = -29%; year 4 = -1%.

Which of the following is the best definition for the concept of risk premium?

The U.S. Securities and Exchange Commission periodically charges individuals for insider trading and claims those individuals have made unfair profits. Based on this fact, you would tend to argue that the financial markets are at best _____ form efficient.

If a market has semi-strong efficiency, then all historical information is included in market prices.

You purchased a bond on January 1, 2002 for $839.67. The bond has a $1,000 face value, an 8% annual coupon, and can be sold for $822.33 on December 31, 2002. What is your percentage return on investment for the year?

Over the long-term, the greater the volatility in the returns on a risky security the:

Market prices reacting suddenly to unexpected news announcements reinforces the argument that the financial markets are efficient.

The dollar rate of return on an investment can be mathematically defined as:

You purchased a five-year 6% annual coupon bond one year ago for $990. You sold the bond today when the market rate of return is 4.5%. If the inflation rate for the past year was 2.0%, what nominal rate of return did you earn on this investment?

Calculate the geometric return of an investment with five year returns of 10%, 6%, 4%, 2% and (10%) .

Which one of the following categories of securities has the highest average risk premium?

The larger the variance, the more the actual returns tend to differ from the average return.

Leah Merryweather stock has an expected rate of return of 12.5% and a standard deviation of 26.3%. Which one of the following best describes the probability that this stock will lose 40% or more in any one given year?

Provide a definition for the concept of variance.

Treadwell Motors stock returned 11%, 14%, 3%, and 9% over the past 4 years, respectively. The arithmetic average return for this period is _____%.

What percentage of the population is represented within one standard deviation?