Question 1

Winslow stock is currently selling for $39 a share.The stock has a dividend yield of 2.3 percent.How much dividend income will you receive per year if you purchase 400 shares of this stock?
A)$248.80
B)$390.47
C)358.80
D)$239.50
E)$360.00

Accepted Answer

Dividend income = $39 × 0.023 × 400 = $358.80

Question 2

EXO shares are currently selling for $22.08 each.You bought 300 shares one year ago at $18.60 a share and received dividend payments of $0.62 a share.What is the percentage capital gain for the period?
A)14.17%
B)18.71%
C)20.24%
D)23.21%
E)22.04%

Accepted Answer

Capital gain = ($22.08 − $18.60)/ $18.60 = 0.1871,or 18.71%

Question 3

One year ago,Stacey purchased 200 shares of IXC stock at a price of $42.68 per share.The stock pays an annual dividend of $1.06 per share.Today,she sold all of her shares for $37.43 per share.What is her total dollar return on this investment?
A)−$703
B)−$838
C)$1,022
D)$1,262
E)−$1,050

Accepted Answer

Total dollar return = ($37.43 − $42.68 + $1.06)× 200 = −$838

Question 4

What lesson can be learned from the 2008 market decline?
A)Stocks and bonds react similarly in downward markets.
B)Diversification lowers risk.
C)Market declines cause high inflation rates.
D)Global markets all react exactly the same.
E)Equity risk premiums will decline in the future.

Accepted Answer

The lesson learned from the 2008 market decline is that diversification lowers risk. During the market decline, certain stocks and asset classes suffered more than others, but by diversifying across multiple asset classes, the overall impact on a portfolio could be minimized. This emphasizes the importance of having a well-diversified portfolio to mitigate risk.

Question 5

In 2008,the S&P 500 index
A)declined in value every month.
B)declined almost 17 percent in 1 month.
C)increased in value during 2 months.
D)never increased by more than 2 percent in any 1 month.
E)increased in value during the first 3 months.

Accepted Answer

In October 2008, the S&P 500 index declined by approximately 17%, marking one of the largest monthly declines during the financial crisis.

Question 6

One year ago,Ted purchased 300 shares of stock at $18.09 a share.Today,he received a total of $267 in dividends and sold his shares for a total of $5,250.What was his total rate of return?
A)−3.57%
B)−2.94%
C)−4.43%
D)2.47%
E)1.66%

Accepted Answer

Rate of return = [($5,250 − (300 × $18.09)+ $267] / (300 × $18.09)= 0.0166,or 1.66%

Question 7

Deltona stock sold for $52.84 a share 1 year ago and pays an annual dividend of $3.20.What does the stock price need to be today for the annual capital gain to be 6.8 percent?
A)$53.23
B)$49.25
C)$56.43
D)$48.63
E)$54.18

Accepted Answer

0.068 = (P_{t + 1} − $52.84)/ $52.84 P_{t + 1} = $56.43

Question 8

The average compound return earned per year over a multiyear period is called the ________ average return.
A)real
B)standard
C)arithmetic
D)variant
E)geometric

Accepted Answer

The average compound return earned per year over a multiyear period is referred to as the geometric average return. This measure of return considers the effect of compounding on investment returns, making it the most representative measure of an investment's historical performance. Arithmetic average return is also a measure of return, but it does not take compounding into account and can be misleading, particularly for long-term investments. Real and standard average returns are not widely used measures of return. Variant average return is not a financial or statistical term.

Question 9

The return earned in a typical year over a multiyear period is called the ________ average return.
A)arithmetic
B)standard
C)variant
D)geometric
E)real

Accepted Answer

The answer of The return earned in a typical year...

Question 10

Suppose a portfolio had an arithmetic average return of 8 percent for a 4-year period.Which one of these statements must be true regarding this portfolio for the period?
A)At least one of the 4 years produced an annual rate of return of 8 percent.
B)If the standard deviation of the portfolio is greater than zero,then the geometric average portfolio return is less than 8 percent.
C)The standard deviation of the portfolio must be lower than the standard deviation of a comparable portfolio that had an arithmetic average return of 9 percent.
D)If the standard deviation of the portfolio is zero,then the geometric average return must also be zero.
E)The holding period return must be less than 8 percent.

Accepted Answer

The answer of Suppose a portfolio had an arithmetic average...

Question 11

One year ago,Barkley's stock sold for $28 a share.During last year,Barkley's paid $1.23 per share in dividends and saw its stock price increase by 7 percent for the year.Today,the firm announced that it will pay $1.30 per share in dividends this year.What do you know with certainty about the performance of Barkley's stock for this year?
A)The total rate of return will be higher this year than it was last year.
B)The dividend yield for this year will be higher than it was last year.
C)The capital gains yield will be positive.
D)The dividend yield for this year will be lower than it was last year.
E)The total rate of return will be lower this year than it was last year.

Accepted Answer

Dividend yield_{Last year} = $1.23 / $28 = 0.0439,or 4.39% Dividend yield_{This year} = $1.30 / (1.07 × $28)= 0.0434,or 4.34%

Question 12

This morning,you purchased one share of stock for $26.The stock pays $.32 per share each quarter as a dividend.What must the stock price be 1 year from now if you want to earn a total return of 16 percent for the year?
A)$29.84
B)$28.88
C)$25.01
D)$27.12
E)$27.46

Accepted Answer

0.16 = [P_{t + 1} − $26 + (4 × $0.32)] / $26 P_{t + 1} = $28.88

Question 13

In 2008,the S&P 500 index had an annual decline of
A)68 percent.
B)24 percent.
C)46 percent.
D)57 percent.
E)37 percent.

Accepted Answer

The S&P 500 index declined by approximately 37 percent in 2008, during the financial crisis.

Question 14

One year ago,Aimee purchased 300 shares of stock at a price of $21.39 per share.Over the last year,she received total dividend income of $69.What is the dividend yield?
A)2.20%
B)1.08%
C)2.47%
D)0.65%
E)2.14%

Accepted Answer

Dividend yield = ($69 / 300)/ $21.39 = 0.0108,or 1.08%

Question 15

One year ago,you purchased a stock at a price of $47.26 a share.Today,you sold the stock and realized a total return of 9.8 percent.Your capital gain was $3.68 a share.What was your dividend yield on this stock?
A)1.25%
B)1.85%
C)2.01%
D)1.75%
E)1.35%

Accepted Answer

Capital gains yield = $3.68 / $47.26 = 0.0779,or 7.79% Dividend yield = 9.8% − 7.79% = 2.01%

Question 16

The geometric average is probably best applied to ________ performance.
A)past
B)future
C)both past and future
D)neither past nor future
E)estimated

Accepted Answer

The geometric average is best applied to past performance as it provides a more accurate measure of historical returns by accounting for compounding over time.

Question 17

The annual returns for KLO stock for the last three years are 7.4 percent,3.2 percent,and 17.8 percent.Assuming no dividends were paid,what was the 3-year holding period percentage return?
A)28.40%
B)25.70%
C)31.40%
D)30.57%
E)36.52%

Accepted Answer

HPR = (1.074 × 1.032 × 1.178)− 1 = 0.3057 or 30.57%

Question 18

You just sold 600 shares of stock for $42.09 a share.One year ago,you purchased the stock for $44.50 a share and have received dividends totalling $0.68 per share.What is your total capital gain in dollars?
A)−$1,446
B)−$1,038
C)$1,038
D)$1,446
E)$1,854

Accepted Answer

Capital gain = ($42.09 − $44.50)× 600 = −$1,446

Question 19

Kurt's Toy Co.has total annual returns for the past 5 years of -8.2 percent,11.7 percent,-6.4 percent,18.7 percent,and 6.8 percent.What is the 5-year holding period return?
A)9.00%
B)17.50%
C)22.60%
D)21.67%
E)20.33%

Accepted Answer

Holding period return = [0.918 × 1.117 × 0.936 × 1.187 × 1.068] − 1 = 0.2167,or 21.67%

Question 20

Eight months ago,Isaac purchased 500 shares of stock at a price of $36.20 a share.To date,he has received two quarterly dividends of $.46 a share each.If he sells his shares at the current price of $36.44 a share,what will be his holding period percentage return?
A).55%
B)1.01%
C)3.20%
D)2.78%
E)2.40%

Accepted Answer

Total percentage return = [$36.44 − $36.20 + (2 × $0.46)] / $36.20 = 0.0320,or 3.20%

Quiz 10: Risk and Return: Lessons From Market History

Winslow stock is currently selling for $39 a share.The stock has a dividend yield of 2.3 percent.How much dividend income will you receive per year if you purchase 400 shares of this stock?

EXO shares are currently selling for $22.08 each.You bought 300 shares one year ago at $18.60 a share and received dividend payments of $0.62 a share.What is the percentage capital gain for the period?

One year ago,Stacey purchased 200 shares of IXC stock at a price of $42.68 per share.The stock pays an annual dividend of $1.06 per share.Today,she sold all of her shares for $37.43 per share.What is her total dollar return on this investment?

What lesson can be learned from the 2008 market decline?

In 2008,the S&P 500 index

One year ago,Ted purchased 300 shares of stock at $18.09 a share.Today,he received a total of $267 in dividends and sold his shares for a total of $5,250.What was his total rate of return?

Deltona stock sold for $52.84 a share 1 year ago and pays an annual dividend of $3.20.What does the stock price need to be today for the annual capital gain to be 6.8 percent?

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

The return earned in a typical year over a multiyear period is called the ________ average return.

Suppose a portfolio had an arithmetic average return of 8 percent for a 4-year period.Which one of these statements must be true regarding this portfolio for the period?

This morning,you purchased one share of stock for $26.The stock pays $.32 per share each quarter as a dividend.What must the stock price be 1 year from now if you want to earn a total return of 16 percent for the year?

In 2008,the S&P 500 index had an annual decline of

One year ago,Aimee purchased 300 shares of stock at a price of $21.39 per share.Over the last year,she received total dividend income of $69.What is the dividend yield?

One year ago,you purchased a stock at a price of $47.26 a share.Today,you sold the stock and realized a total return of 9.8 percent.Your capital gain was $3.68 a share.What was your dividend yield on this stock?

The geometric average is probably best applied to ________ performance.

The annual returns for KLO stock for the last three years are 7.4 percent,3.2 percent,and 17.8 percent.Assuming no dividends were paid,what was the 3-year holding period percentage return?

You just sold 600 shares of stock for $42.09 a share.One year ago,you purchased the stock for $44.50 a share and have received dividends totalling $0.68 per share.What is your total capital gain in dollars?

Kurt's Toy Co.has total annual returns for the past 5 years of -8.2 percent,11.7 percent,-6.4 percent,18.7 percent,and 6.8 percent.What is the 5-year holding period return?

Eight months ago,Isaac purchased 500 shares of stock at a price of $36.20 a share.To date,he has received two quarterly dividends of $.46 a share each.If he sells his shares at the current price of $36.44 a share,what will be his holding period percentage return?