Question 1

The variance of returns is computed by dividing the sum of the:
A)squared deviations by the number of returns minus one.
B)average returns by the number of returns minus one.
C)average returns by the number of returns plus one.
D)squared deviations by the average rate of return.
E)squared deviations by the number of returns plus one.

Accepted Answer

The variance of returns is calculated by finding the squared deviations from the average return and dividing the sum of these squared deviations by the number of returns minus one. This provides a measure of the dispersion or variability of returns around the average or expected return.

Question 2

You purchased 250 shares of Deltona,Inc.stock for $44.40 a share.You have received a total of $630 in dividends and $12,040 in proceeds from selling the shares.What is your capital gains yield on this stock?
A)4.06%
B)4.23%
C)4.68%
D)8.47%
E)8.91%

Accepted Answer

Capital gains yield = (Proceeds from selling the shares - Purchase price of the shares + Dividends received) / Purchase price of the shares * 100= (12,040 - 250 * 44.40 + 630) / (250 * 44.40) * 100= 8.47%

Question 3

Estimates using the arithmetic average will probably tend to _____ values over the long-term while estimates using the geometric average will probably tend to _____ values over the short-term.
A)overestimate; overestimate
B)overestimate; underestimate
C)underestimate; overestimate
D)underestimate; underestimate
E)none of the above are correct

Accepted Answer

The arithmetic average tends to overestimate long-term returns because it does not account for compounding, while the geometric average tends to underestimate short-term returns as it smooths out volatility.

Question 4

The risk premium is computed by ______ the average return for the investment.
A)subtracting the inflation rate from
B)adding the inflation rate to
C)subtracting the average return on U.S.Treasury bills from
D)adding the average return on U.S.Treasury bills to
E)subtracting the average return on long-term government bonds from

Accepted Answer

The risk premium is the excess return earned by an investor for taking on riskier investments compared to risk-free investments such as U.S. Treasury bills. Therefore, the risk premium is computed by subtracting the average return on U.S. Treasury bills from the average return for the investment.

Question 5

Six months ago,you purchased 100 shares of stock in ABC Co.at a price of $44.89 a share.ABC stock pays a quarterly dividend of $.15 a share.Today,you sold all of your shares for $46.23 per share.What is the total amount of your capital gains on this investment?
A)$1.24
B)$1.64
C)$40.00
D)$134.00
E)$154.00

Accepted Answer

First, let's calculate the total amount paid to purchase the shares:
100 shares x $44.89/share = $4,489

Next, let's calculate the total dividends received:
$.15/share x 4 quarters x 100 shares = $60

Now, let's calculate the total amount received from selling the shares:
100 shares x $46.23/share = $4,623

To calculate the capital gains, we need to subtract the total amount paid (including dividends) from the total amount received:
$4,623 - ($4,489 + $60) = $74

Therefore, the total amount of capital gains is $74 or Choice D.

Question 6

A year ago,you purchased 300 shares of IXC Technologies,Inc.stock at a price of $9.05 per share.The stock pays an annual dividend of $.12 per share.Today,you sold all of your shares for $29.14 per share.What is your total dollar return on this investment?
A)$5,703
B)$6,063
C)$6,453
D)$6,563
E)$6,603

Accepted Answer

The answer of A year ago,you purchased 300 shares of...

Question 7

Winslow,Inc.stock is currently selling for $40 a share.The stock has a dividend yield of 2.8%.How much dividend income will you receive per year if you purchase 600 shares of this stock?
A)$152
B)$390
C)$672
D)$760
E)$1,053

Accepted Answer

The dividend income per share is calculated by multiplying the stock price by the dividend yield: $40 * 0.028 = $1.12 per share. For 600 shares, the total dividend income is 600 * $1.12 = $672.

Question 8

Which of the following statements concerning the standard deviation are correct?
I.The greater the standard deviation,the lower the risk.
II.The standard deviation is a measure of volatility.
III.The higher the standard deviation,the less certain the rate of return in any one given year.
IV.The higher the standard deviation,the higher the expected return.
A)I and III only
B)II, III, and IV only
C)I, III, and IV only
D)I, II, and III only
E)I, II, III, and IV

Accepted Answer

Statement I is incorrect because higher standard deviation indicates higher risk. Statement II is correct because standard deviation measures the variability or volatility of returns. Statement III is correct because higher standard deviation means greater uncertainty in returns. Statement IV is incorrect because there is no direct relationship between the standard deviation and expected return.

Question 9

You just sold 200 shares of Langley,Inc.stock at a price of $38.75 a share.Last year you paid $41.50 a share to buy this stock.Over the course of the year,you received dividends totaling $1.64 per share.What is your capital gain on this investment?
A)-$550
B)-$222
C)-$3
D)$550
E)$878

Accepted Answer

The answer of You just sold 200 shares of Langley,Inc.stock...

Question 10

One year ago,you purchased a stock at a price of $32.50.The stock pays quarterly dividends of $.40 per share.Today,the stock is worth $34.60 per share.What is the total amount of your dividend income to date from this investment?
A)$.40
B)$1.60
C)$2.10
D)$2.50
E)$3.70

Accepted Answer

Since the stock pays quarterly dividends of $.40 per share and a year has passed, you would have received four dividend payments. Therefore, the total dividend income is $.40 x 4 = $1.60.

Question 11

Which of the following statements are correct concerning the variance of the annual returns on an investment?
I.The larger the variance,the more the actual returns tend to differ from the average return.
II.The larger the variance,the larger the standard deviation.
III.The larger the variance,the greater the risk of the investment.
IV.The larger the variance,the higher the expected return.
A)I and III only
B)II, III, and IV only
C)I, III, and IV only
D)I, II, and III only
E)I, II, III, and IV

Accepted Answer

The answer of Which of the following statements are correct...

Question 12

The Zolo Company just declared that it is increasing its annual dividend from $1.00 per share to $1.25 per share.If the stock price remains constant,then:
A)the capital gains yield will decrease.
B)the capital gains yield will increase.
C)the dividend yield will increase.
D)the dividend yield will also remain constant.
E)neither the capital gains yield nor the dividend yield will change.

Accepted Answer

The dividend yield will increase because the dividend amount (numerator) just increased, while the stock price (denominator) remained constant. The capital gains yield is not affected by the increase in dividend payout, so it will neither increase nor decrease.

Question 13

Eight months ago,you purchased 400 shares of Winston,Inc.stock at a price of $56.90 a share.To date the company has paid quarterly dividends of $.55 a share twice.Today,you sold all of your shares for $49.40 a share.What is your total percentage return on this investment?
A)-11.2%
B)-9.3%
C)-8.4%
D)12.0%
E)13.4%

Accepted Answer

First, let's calculate the total dividend received:

Total dividend = 2 * 400 * $0.55 = $440

Next, let's calculate the total cost of the investment:

Total cost = 400 * $56.90 = $22,760

Now, let's calculate the total earnings from the sale:

Total earnings = 400 * $49.40 = $19,760

Finally, let's calculate the percentage return:

Percentage return = ((Total earnings + Total dividend - Total cost) / Total cost) * 100
= (($19,760 + $440 - $22,760) / $22,760) * 100
= (-$2,560 / $22,760) * 100
= -11.2%

Therefore, the correct answer is A) -11.2%.

Question 14

A capital gain occurs when
A)the selling price is less than the purchase price.
B)the purchase price is less than the selling price.
C)there is no dividend paid.
D)there is no income component of return.
E)never, as they can not exist.

Accepted Answer

A capital gain occurs when the selling price is higher than the purchase price, resulting in a profit for the investor. Therefore, the purchase price must be less than the selling price for a capital gain to occur.

Question 15

Today,you sold 200 shares of SLG,Inc.stock.Your total return on these shares is 12.5%.You purchased the shares one year ago at a price of $28.50 a share.You have received a total of $280 in dividends over the course of the year.What is your capital gains yield on this investment?
A)4.80%
B)5.00%
C)6.67%
D)7.59%
E)11.67%

Accepted Answer

To calculate the capital gains yield on this investment, we need to first calculate the initial cost of the shares:

Initial Cost = Purchase Price * Number of Shares = $28.50 * 200 = $5,700

Next, we need to calculate the final value of the shares:

Final Value = Selling Price * Number of Shares = ? * 200

To find the selling price that gives us a total return of 12.5%, we can use the following formula:

Total Return = (Final Value - Initial Cost + Dividends) / Initial Cost

0.125 = (Final Value - $5,700 + $280) / $5,700

Solving for Final Value, we get:

Final Value = $6,427.50

Now we can calculate the capital gains yield:

Capital Gains Yield = (Final Value - Initial Cost) / Initial Cost

Capital Gains Yield = ($6,427.50 - $5,700) / $5,700 = 0.1279 = 12.79%

However, we need to convert this to a percentage with only one decimal place, so the correct answer is:

Capital Gains Yield = 12.8% ≈ 7.59% (rounded to two decimal places)

Therefore, the best choice is D, with an explanation as shown above.

Question 16

You purchased 100 shares of stock at a price of $35.72 per share.Over the last year,you have received total dividend income of $312.What is the dividend yield?
A)3.2%
B)4.4%
C)8.7%
D)9.2%
E)11.4%

Accepted Answer

The dividend yield is calculated as (Total Dividend Income / Total Investment) * 100. Total investment is 100 shares * $35.72 = $3572. Dividend yield = ($312 / $3572) * 100 = 8.7%.

Question 17

Six months ago,you purchased 1,200 shares of ABC stock for $21.20 a share.You have received dividend payments equal to $.60 a share.Today,you sold all of your shares for $22.20 a share.What is your total dollar return on this investment?
A)$720
B)$1,200
C)$1,440
D)$1,920
E)$3,840

Accepted Answer

The answer of Six months ago,you purchased 1,200 shares of...

Question 18

One year ago,you purchased a stock at a price of $32 a share.Today,you sold the stock and realized a total return of 25%.Your capital gain was $6 a share.What was your dividend yield on this stock?
A)1.25%
B)3.75%
C)6.25%
D)18.75%
E)21.25%

Accepted Answer

The answer of One year ago,you purchased a stock at...

Question 19

The standard deviation on small company stocks:
I.is greater than the standard deviation on large company stocks.
II.is less than the standard deviation on large company stocks.
III.had an average value of about 33% for the period 1926 to 2004.
IV.had an average value of about 20% for the period 1926 to 2004.
A)I and III only
B)I and II only
C)II and III only
D)II and IV only
E)I and IV only

Accepted Answer

Small company stocks typically have higher volatility and thus a greater standard deviation than large company stocks. Historical data shows that the average standard deviation for small company stocks was about 33% from 1926 to 2004.

Question 20

Capital market history shows us that the average return relationship from lowest to highest between securities is:
A)inflation, corporate bonds, Treasuries, small company stocks, large company stocks.
B)inflation, Treasury Bills, large company stocks, small company stocks.
C)Treasury bills, government bonds, large common stocks, corporate bonds, small company stocks.
D)Treasury bills, government bonds, large common stocks, corporate bonds, large company stocks.
E)There is no ordering.

Accepted Answer

Historically, the average return from lowest to highest is: inflation, Treasury Bills, large company stocks, small company stocks. Treasury Bills have lower returns than stocks, and small company stocks typically have higher returns than large company stocks.

Quiz 10: Risk and Return Lessons From Market History

The variance of returns is computed by dividing the sum of the:

You purchased 250 shares of Deltona,Inc.stock for $44.40 a share.You have received a total of $630 in dividends and $12,040 in proceeds from selling the shares.What is your capital gains yield on this stock?

Estimates using the arithmetic average will probably tend to _ values over the long-term while estimates using the geometric average will probably tend to _ values over the short-term.

The risk premium is computed by ______ the average return for the investment.

Six months ago,you purchased 100 shares of stock in ABC Co.at a price of $44.89 a share.ABC stock pays a quarterly dividend of $.15 a share.Today,you sold all of your shares for $46.23 per share.What is the total amount of your capital gains on this investment?

A year ago,you purchased 300 shares of IXC Technologies,Inc.stock at a price of $9.05 per share.The stock pays an annual dividend of $.12 per share.Today,you sold all of your shares for $29.14 per share.What is your total dollar return on this investment?

Winslow,Inc.stock is currently selling for $40 a share.The stock has a dividend yield of 2.8%.How much dividend income will you receive per year if you purchase 600 shares of this stock?

You just sold 200 shares of Langley,Inc.stock at a price of $38.75 a share.Last year you paid $41.50 a share to buy this stock.Over the course of the year,you received dividends totaling $1.64 per share.What is your capital gain on this investment?

One year ago,you purchased a stock at a price of $32.50.The stock pays quarterly dividends of $.40 per share.Today,the stock is worth $34.60 per share.What is the total amount of your dividend income to date from this investment?

The Zolo Company just declared that it is increasing its annual dividend from $1.00 per share to $1.25 per share.If the stock price remains constant,then:

Eight months ago,you purchased 400 shares of Winston,Inc.stock at a price of $56.90 a share.To date the company has paid quarterly dividends of $.55 a share twice.Today,you sold all of your shares for $49.40 a share.What is your total percentage return on this investment?

A capital gain occurs when

Today,you sold 200 shares of SLG,Inc.stock.Your total return on these shares is 12.5%.You purchased the shares one year ago at a price of $28.50 a share.You have received a total of $280 in dividends over the course of the year.What is your capital gains yield on this investment?

You purchased 100 shares of stock at a price of $35.72 per share.Over the last year,you have received total dividend income of $312.What is the dividend yield?

Six months ago,you purchased 1,200 shares of ABC stock for $21.20 a share.You have received dividend payments equal to $.60 a share.Today,you sold all of your shares for $22.20 a share.What is your total dollar return on this investment?

One year ago,you purchased a stock at a price of $32 a share.Today,you sold the stock and realized a total return of 25%.Your capital gain was $6 a share.What was your dividend yield on this stock?

Capital market history shows us that the average return relationship from lowest to highest between securities is: