Question 1

Assume that over the last several decades,the total annual returns on large-company common stocks averaged 12.1 percent,small-company stocks averaged 16.5 percent,long-term government bonds averaged 6 percent,and U.S.T-bills averaged 3.4 percent.What was the average excess return earned by long-term government bonds,and small-company stocks respectively?
A)1.8 percent; 13.3 percent
B)2.6 percent; 13.1 percent
C)2.6 percent; 4.4 percent
D)1.9 percent; 5.1 percent
E)4.4 percent; 2.6 percent

Accepted Answer

The average excess return earned by long-term government bonds is calculated as (average long-term government bond return - average T-bill return) = (6%-3.4%) = 2.6%.
The average excess return earned by small-company stocks is calculated as (average small-company stock return - average large-company stock return) = (16.5%-12.1%) = 4.4%.
Therefore, the correct option is B.

Question 2

A stock has an expected rate of return of 8.3 percent and a standard deviation of 6.4 percent.Which one of the following best describes the probability that this stock will lose more than 4.50 percent in any one given year?
A)Less than 2.5 percent
B)Less than 1.0 percent
C)Less than 1.5 percent
D)Less than .5 percent
E)Less than 5 percent

Accepted Answer

To determine the probability of a stock losing more than 4.50 percent in any given year, we can use the concept of standard deviation in relation to the expected rate of return. The expected rate of return is 8.3 percent, and the standard deviation is 6.4 percent. A loss of more than 4.50 percent means the return would be below -4.50 percent. This scenario is significantly below the expected return, falling more than one standard deviation away from the mean (since 8.3% - 4.5% > 6.4%). In a normal distribution, about 68% of outcomes lie within one standard deviation of the mean, about 95% within two, and over 99% within three. Given this, the probability of a return falling more than one standard deviation below the mean (thus into the loss of more than 4.5%) would be in the tail, which is less than 16% (100% - 84%). However, since the loss of more than 4.5% is significantly below the mean, it would likely fall into the far tail, making the probability even lower, aligning with the option stating "Less than 2.5 percent". This is a rough estimation, as exact calculations would require Z-score or similar statistical analysis, but it gives a general idea of the probability's range.

Question 3

Six months ago,you purchased 1,200 shares of ABC stock for $21.20 a share and have received total dividend payments of $.60 a share.Today,you sold all 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 4

Winslow,Inc.,stock is currently selling for $59.48 a share.The stock has an expected growth rate of 4.22 percent and an expected total return for the next year of 9.87 percent.How much dividend income should you expect to receive next year if you purchase 800 shares of this stock today?
A)$2,309.20
B)$2,008.04
C)$2,688.50
D)$2,380.15
E)$2,001.10

Accepted Answer

To determine the expected dividend income, we need to use the formula: Dividend per share = Dividend payout ratio x Earnings per share. However, since the problem doesn't provide us with the dividend payout ratio and earnings per share, we will use the expected total return to estimate the dividend yield (since dividend yield + expected capital gain = expected total return):

Dividend yield = (Expected total return - Expected capital gain) / Stock price
Dividend yield = (9.87% - 4.22%) / $59.48
Dividend yield = 0.0560 or 5.60%

Now, we can estimate the expected dividend income:
Expected dividend income = Dividend per share x Number of shares
Expected dividend income = (0.0560 x $59.48) x 800
Expected dividend income = $2,688.50

Therefore, the correct answer is C.

Question 5

Today,you sold 300 shares of SLG stock and realized a total return of 12.5 percent.You purchased the shares one year ago at a price of $27.43 a share.You have received a total of $192 in dividends.What is your capital gains yield on this investment?
A)14.80 percent
B)9.39 percent
C)6.67 percent
D)10.17 percent
E)11.67 percent

Accepted Answer

First, we need to calculate the total selling price of the 300 shares:
Total Selling Price = 300 shares * Current Price
We can use the total return percentage to calculate the current price:
12.5% = (Total Selling Price - Total Cost - Total Dividends) / Total Cost
12.5% = (Total Selling Price - (300 shares * $27.43) - $192) / (300 shares * $27.43)
Solving for Total Selling Price, we get:
Total Selling Price = $9,246.44

Now, we can calculate the capital gains yield:
Capital Gains = (Total Selling Price - Total Cost) / Total Cost
Total Cost = (300 shares * $27.43) + $192 = $8,289
Capital Gains = ($9,246.44 - $8,289) / $8,289 = 11.56%
Therefore, the closest answer is D) 10.17 percent.

Question 6

You bought 360 shares of stock at a total cost of $7,754.40.You received a total of $403.20 in dividends and sold your shares for $19.98 a share.What was your total rate of return?
A)3.67 percent
B)−2.04 percent
C)−1.29 percent
D)7.24 percent
E)5.38 percent

Accepted Answer

The answer of You bought 360 shares of stock at...

Question 7

You purchased 300 shares of Deltona stock for $43.90 a share.You have received a total of $630 in dividends and $14,620 in proceeds from selling the shares.What is your capital gains yield on this stock?
A)6.23 percent
B)11.01 percent
C)17.68 percent
D)9.55 percent
E)15.79 percent

Accepted Answer

The answer of You purchased 300 shares of Deltona stock...

Question 8

Eight months ago,you purchased 400 shares of Winston stock at a price of $46.40 a share.The company pays quarterly dividends of $1.05 a share.Today,you sold all your shares for $48.30 a share.What is your total percentage return on this investment?
A)10.12 percent
B)4.09 percent
C)8.62 percent
D)12.08 percent
E)7.34 percent

Accepted Answer

The total return on the investment includes both the capital gains and the dividends received. The capital gain per share is calculated as the selling price minus the purchase price: $48.30 - $46.40 = $1.90. The total capital gain is $1.90 * 400 = $760. The total dividends received over eight months (which covers two quarterly dividend payments) is $1.05 * 2 * 400 = $840. The total return is the sum of the capital gains and dividends: $760 + $840 = $1600. The initial investment was $46.40 * 400 = $18,560. The percentage return is ($1600 / $18,560) * 100 = 8.62%.

Question 9

One year ago,you purchased 300 shares of IXC stock at a price of $22.05 per share,received $460 in dividends over the year,and today sold all your shares for $29.32 per share.What was your dividend yield?
A)5.23 percent
B)5.87 percent
C)6.95 percent
D)1.92 percent
E)2.48 percent

Accepted Answer

The dividend yield is calculated as the total dividends received divided by the initial investment. The initial investment is 300 shares * $22.05 = $6,615. The dividend yield is $460 / $6,615 = 0.0695 or 6.95 percent.

Question 10

Two years ago,you purchased 100 shares of stock in ABC at a price of $43.26 a share.The stock pays an annual dividend of $.10 a share.Today,you sold all your shares for $46.71 per share.What is your holding period return?
A)8.24 percent
B)7.81 percent
C)7.97 percent
D)8.44 percent
E)8.90 percent

Accepted Answer

The holding period return is calculated as [(Ending Price - Beginning Price + Dividends) / Beginning Price] * 100. Here, it is [(46.71 - 43.26 + 0.20) / 43.26] * 100 = 8.44 percent.

Question 11

A stock had annual returns of 7.63 percent,9.28 percent,−3.11 percent,and 15.09 percent for the past four years,respectively.What is the real arithmetic average rate of return for this period if inflation averaged 2.3 percent?
A)4.15 percent
B)5.24 percent
C)4.81 percent
D)5.02 percent
E)5.36 percent

Accepted Answer

The real arithmetic average rate of return can be calculated as follows:

Real average rate of return = [(1+0.0763) x (1+0.0928) x (1-0.0311) x (1+0.1509)]^(1/4) -1

Real average rate of return = (1.183998952)^(1/4) - 1

Real average rate of return = 0.0481 or 4.81%

Adjusting for inflation, the real average rate of return is lower than the nominal average return of all four years.

Question 12

You invested in long-term corporate bonds and earned 6.8 percent.During that same time period,large-company stocks returned 12.6 percent,long-term government bonds returned 6.4 percent,U.S.Treasury bills returned 4.2 percent,and inflation averaged 3.8 percent.What excess return did you earn?
A)2.6 percent
B)2.3 percent
C)1.3 percent
D).4 percent
E)3.0 percent

Accepted Answer

The excess return is calculated by subtracting the inflation rate from the return on the investment. The return on long-term corporate bonds is 6.8 percent, and the inflation rate is 3.8 percent. Therefore, the excess return is 6.8% - 3.8% = 3.0%.

Question 13

A stock had annual returns of 3 percent,18 percent,and −24 percent over a three-year period.Based on this information,what is the 68 percent probability range for any one given year?
A)−40.53 to 38.53 percent
B)−20.28 to 22.28 percent
C)−20.28 to 20.28 percent
D)−22.28 to 20.28 percent
E)−43.56 to 41.56 percent

Accepted Answer

The answer of A stock had annual returns of 3...

Question 14

Soo Lee owns a stock that has had annual returns of 11.6 percent,9.3 percent,−22.8 percent,and 34.6 percent over the last four-year period.What is his arithmetic mean return on this investment?
A)7.94 percent
B)19.58 percent
C)14.62 percent
D)11.47 percent
E)8.18 percent

Accepted Answer

The answer of Soo Lee owns a stock that has...

Question 15

You have a sampling of returns for the Malta Stock Fund.The returns are 7.25 percent,5.63 percent,12.56 percent,and 1.08 percent.What is the mean and variance of this sampling?
A)6.57 percent; .00287
B)6.63 percent; .00225
C)6.65 percent; .00215
D)6.63 percent; .00287
E)6.63 percent; .00215

Accepted Answer

To find the mean, we add up all of the returns and divide by the number of returns:
Mean = (7.25 + 5.63 + 12.56 + 1.08) / 4 = 6.63%
To find the variance, we first need to find the difference between each return and the mean, square those differences, add them up, and divide by the number of returns:
Variance = ((7.25 - 6.63)^2 + (5.63 - 6.63)^2 + (12.56 - 6.63)^2 + (1.08 - 6.63)^2) / 4
Variance = 0.00225 (rounded to 5 decimal places)
Therefore, the best choice is B because it provides the correct mean and variance.

Question 16

You bought 600 shares of stock at $24.20 each.At the end of the year,you received a total of $720 in dividends,and your stock was worth a total of $15,678.What was your total dollar capital gain and total dollar return?
A)$1,878; $2,598
B)$1,878; $1,158
C)$1,158; $1,878
D)$1,158; $2,598
E)$2,598; $1,878

Accepted Answer

First, let's calculate the total amount paid to buy the 600 shares:
600 x $24.20 = $14,520

Next, let's calculate the ending value of the 600 shares:
600 x Current Value = $15,678
Current Value = $26.13

Now we can calculate the total dollar capital gain:
600 x ($26.13 - $24.20) = $1,158

Finally, we can calculate the total dollar return:
Total dollar return = Capital gain + dividends received
Total dollar return = $1,158 + $720 = $1,878

Therefore, the answer is C.

Question 17

BCD shares are currently selling for $27.38 each.You bought 200 shares one year ago at $26.59 and received dividend payments of $1.27 per share.What was your percentage capital gain for the year?
A)2.97 percent
B)3.21 percent
C)7.75 percent
D)−2.89 percent
E)7.52 percent

Accepted Answer

The capital gain is calculated as (Selling Price - Purchase Price) / Purchase Price. Here, it is ($27.38 - $26.59) / $26.59 = 0.0297 or 2.97 percent.

Question 18

You purchased 300 shares of stock at a price of $37.23 per share.Over the last year,you have received total dividend income of $351.What is the capital gains yield if your total return is 11.47 percent?
A)8.33 percent
B)7.26 percent
C)9.39 percent
D)9.50 percent
E)7.67 percent

Accepted Answer

The total return is the sum of the dividend yield and the capital gains yield. First, calculate the dividend yield: Dividend income / Initial investment = $351 / ($37.23 * 300) = $351 / $11169 = 0.0314 or 3.14%. Since the total return is 11.47%, the capital gains yield is the total return minus the dividend yield: 11.47% - 3.14% = 8.33%.

Question 19

Three years ago,you purchased a stock at a price of $33.48.The stock paid annual dividends of $.60 per share.Today,the stock is worth $35.20 per share.What is your holding period return?
A)10.03 percent
B)6.93 percent
C)10.51 percent
D)5.14 percent
E)6.59 percent

Accepted Answer

To calculate the holding period return, we need to consider the dividends received during the holding period and the increase in stock price.

Dividends received = Annual dividends per share x Number of shares x Holding period
= 0.60 x 1 x 3 = $1.80

Increase in stock price = (Current stock price - Purchase price) / Purchase price
= (35.20 - 33.48) / 33.48
= 0.0513 or 5.13%

Holding period return = (Dividends received + Increase in stock price) / Purchase price x 100%
= (1.80 + 5.13) / 33.48 x 100%
= 10.51%

Therefore, the correct answer is C, 10.51 percent.

Question 20

A stock had returns of 9 percent,−6 percent,4 percent,and 16 percent over the past four years.What is the standard deviation of these returns?
A)8.56 percent
B)6.67 percent
C)7.14 percent
D)9.25 percent
E)7.98 percent

Accepted Answer

The answer of A stock had returns of 9 percent,−6...

Quiz 10: Lessons From Market History

A stock has an expected rate of return of 8.3 percent and a standard deviation of 6.4 percent.Which one of the following best describes the probability that this stock will lose more than 4.50 percent in any one given year?

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

Winslow,Inc.,stock is currently selling for $59.48 a share.The stock has an expected growth rate of 4.22 percent and an expected total return for the next year of 9.87 percent.How much dividend income should you expect to receive next year if you purchase 800 shares of this stock today?

Today,you sold 300 shares of SLG stock and realized a total return of 12.5 percent.You purchased the shares one year ago at a price of $27.43 a share.You have received a total of $192 in dividends.What is your capital gains yield on this investment?

You bought 360 shares of stock at a total cost of $7,754.40.You received a total of $403.20 in dividends and sold your shares for $19.98 a share.What was your total rate of return?

You purchased 300 shares of Deltona stock for $43.90 a share.You have received a total of $630 in dividends and $14,620 in proceeds from selling the shares.What is your capital gains yield on this stock?

Eight months ago,you purchased 400 shares of Winston stock at a price of $46.40 a share.The company pays quarterly dividends of $1.05 a share.Today,you sold all your shares for $48.30 a share.What is your total percentage return on this investment?

One year ago,you purchased 300 shares of IXC stock at a price of $22.05 per share,received $460 in dividends over the year,and today sold all your shares for $29.32 per share.What was your dividend yield?

Two years ago,you purchased 100 shares of stock in ABC at a price of $43.26 a share.The stock pays an annual dividend of $.10 a share.Today,you sold all your shares for $46.71 per share.What is your holding period return?

A stock had annual returns of 7.63 percent,9.28 percent,−3.11 percent,and 15.09 percent for the past four years,respectively.What is the real arithmetic average rate of return for this period if inflation averaged 2.3 percent?

You invested in long-term corporate bonds and earned 6.8 percent.During that same time period,large-company stocks returned 12.6 percent,long-term government bonds returned 6.4 percent,U.S.Treasury bills returned 4.2 percent,and inflation averaged 3.8 percent.What excess return did you earn?

A stock had annual returns of 3 percent,18 percent,and −24 percent over a three-year period.Based on this information,what is the 68 percent probability range for any one given year?

Soo Lee owns a stock that has had annual returns of 11.6 percent,9.3 percent,−22.8 percent,and 34.6 percent over the last four-year period.What is his arithmetic mean return on this investment?

You have a sampling of returns for the Malta Stock Fund.The returns are 7.25 percent,5.63 percent,12.56 percent,and 1.08 percent.What is the mean and variance of this sampling?

You bought 600 shares of stock at $24.20 each.At the end of the year,you received a total of $720 in dividends,and your stock was worth a total of $15,678.What was your total dollar capital gain and total dollar return?

BCD shares are currently selling for $27.38 each.You bought 200 shares one year ago at $26.59 and received dividend payments of $1.27 per share.What was your percentage capital gain for the year?

You purchased 300 shares of stock at a price of $37.23 per share.Over the last year,you have received total dividend income of $351.What is the capital gains yield if your total return is 11.47 percent?

Three years ago,you purchased a stock at a price of $33.48.The stock paid annual dividends of $.60 per share.Today,the stock is worth $35.20 per share.What is your holding period return?

A stock had returns of 9 percent,−6 percent,4 percent,and 16 percent over the past four years.What is the standard deviation of these returns?