## Fundamentals of Corporate Finance Study Set 23

Business

## Quiz 12 :

Return, Risk and the Security Market

Looking for Finance Homework Help?

Q13 Q13 Q13

Which of the following statements is correct in relation to a stock investment?
I)The capital gains yield can be positive, negative, or zero.
II)The dividend yield can be positive, negative, or zero.
III)The total return can be positive, negative, or zero.
IV)Neither the dividend yield nor the total return can be negative.

Free

Unlocked

Multiple Choice

Q35 Q35 Q35

If the variability of the returns on large-company stocks were to increase over the long-term, you would expect which of the following to occur as a result?
I)decrease in the average rate of return
II)increase in the risk premium
III)increase in the 68 percent probability range of the frequency distribution of returns
IV)decrease in the standard deviation

Free

Unlocked

Multiple Choice

Q40 Q40 Q40

Which of the following statements are true based on the historical record for 1926-2010?
I)Risk and potential reward are inversely related.
II)Risk-free securities produce a positive real rate of return each year.
III)Returns are more predictable over the short-term than they are over the long-term.
IV)Bonds are generally a safer investment than are stocks.

Free

Unlocked

Multiple Choice

Q41 Q41 Q41

Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _____ the expected return for the long-term and estimates using the historical geometric average will probably tend to _____ the expected return for the short-term.

Free

Unlocked

Multiple Choice

Q43 Q43 Q43

Which two of the following are the most likely reasons why a stock price might not react at all on the day that new information related to the stock issuer is released?
I)insiders knew the information prior to the announcement
II)investors need time to digest the information prior to reacting
III)the information has no bearing on the value of the firm
IV)the information was anticipated

Free

Unlocked

Multiple Choice

Q49 Q49 Q49

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.

Free

Unlocked

Multiple Choice

Q51 Q51 Q51

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.

Free

Unlocked

Multiple Choice

Q55 Q55 Q55

Six months ago, you purchased 100 shares of stock in Global Trading at a price of $38.70 a share.The stock pays a quarterly dividend of $0.15 a share.Today, you sold all of your shares for $40.10 per share.What is the total amount of your dividend income on this investment?

Free

Unlocked

Multiple Choice

Q56 Q56 Q56

A year ago, you purchased 300 shares of Stellar Wood Products, Inc.stock at a price of $8.62 per share.The stock pays an annual dividend of $0.10 per share.Today, you sold all of your shares for $4.80 per share.What is your total dollar return on this investment?

Free

Unlocked

Multiple Choice

Q62 Q62 Q62

Today, you sold 200 shares of Indian River Produce stock.Your total return on these shares is 6.2 percent.You purchased the shares one year ago at a price of $31.10 a share.You have received a total of $100 in dividends over the course of the year.What is your capital gains yield on this investment?

Free

Unlocked

Multiple Choice

Q65 Q65 Q65

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?

Free

Unlocked

Multiple Choice

Q66 Q66 Q66

One year ago, you purchased 150 shares of a stock at a price of $54.18 a share.Today, you sold those shares for $40.25 a share.During the past year, you received total dividends of $182 while inflation averaged 4.2 percent.What is your approximate real rate of return on this investment?

Free

Unlocked

Multiple Choice

Q73 Q73 Q73

Your friend is the owner of a stock which had returns of 25 percent, -36 percent, 1 percent, and 16 percent for the past four 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?

Free

Unlocked

Multiple Choice

Q81 Q81 Q81

Over the past fifteen years, the common stock of The Flower Shoppe, Inc.has produced an arithmetic average return of 12.2 percent and a geometric average return of 11.5 percent.What is the projected return on this stock for the next five years according to Blume's formula?

Free

Unlocked

Multiple Choice

Q82 Q82 Q82

Based on past 23 years, Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Free

Unlocked

Multiple Choice

Q88 Q88 Q88

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 3 percent, -10 percent, 24 percent, 22 percent, and 12 percent.Suppose the average inflation rate over this time period was 3.6 percent and the average T-bill rate was 4.8 percent.Based on this information, what was the average nominal risk premium?

Free

Unlocked

Multiple Choice

Q89 Q89 Q89

You bought one of Great White Shark Repellant Co.'s 10 percent coupon bonds one year ago for $815.These bonds pay annual payments, have a face value of $1,000, and mature 14 years from now.Suppose you decide to sell your bonds today when the required return on the bonds is 14 percent.The inflation rate over the past year was 3.7 percent.What was your total real return on this investment?

Free

Unlocked

Multiple Choice

Q90 Q90 Q90

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?

Free

Unlocked

Multiple Choice

Q92 Q92 Q92

Assume that the returns from an asset are normally distributed.The average annual return for the asset is 18.1 percent and the standard deviation of the returns is 32.5 percent.What is the approximate probability that your money will triple in value in a single year?

Free

Unlocked

Multiple Choice