volatility
standard deviation is a measure of
normal distribution
defined by its mean and its standard deviation
geometric
the average compound return earned per year over a multi-year period is the - average return
arithmetic
the return earned in an average year over a multi-year period is called the - average return
efficient capital market
assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. which one of the following terms best defines that market?
risk less market
evenly distributed market
z
Efficient market hypothesis
all securities in this market are zero at nvp investments
dividend yield
next years annual dividend divided by todays stock price
capital gains
an increase in an unrealized capital gain will increase the capital gains yield
I & III
correct in relation to a sock investment
I capital gains yield can be positive, negative, or zero
II dividend yield can be positive, negative, or zero
III total return can be positive, negative, or zero
IV neither the dividend yield nor the total return c
minus the inflation rate
the real rate of return on a stock is approximately equal to the nominal rate of return:
less than
as long as the inflation rate is positive, the real rate of return on a security will be - the nominal rate of return
greater than
equal to
less than
greater than or equal to
unrelated to
c
small-co stocks are best defined as
a 500 newest corporations in the US
b firms whose stock trades otc
c smallest 20% of the firms listed on the NYSE
d smallest 20% of the firms listed on the NASDAQ
e firms whose stock is listed on NASDAQ
small company stocks
which category of securities had the highest average return for 1926-2007
US t bills
had the lowest average risk premium in 26-07
small company stocks
most volatile returns over 26-07
us t bills
- - - had a positive average real rate of return in 1926-2007
c
which time periods are associated with high rates of inflation
a 1929-1933
b 1957-1961
c 1978-1981
d 1992-1996
e 2001-2005
positive
US t bills during 1926-2007, the annual rate of return was always -
10-15%
highest annual rate of inflation in 1926-2007
between 0-3%
3-5%
5-10%
10-15%
15-20%
excess return
this is computed as return on a risky security minus the risk free rate
small company stocks
earned the highest risk premium 1926-2007
3.0-3.5
average rate of inflation between 1926-2007
< 2%
2.0-2.5
2.5-3.0
3.0-3.5
> 3.5%
10-12.5%
assume that you invest in a porfolio of large company stocks. further assume that the portfolio will earn a rate of return similar to the average return on large-company stocks for 1926-2007. what rate of return should you expect to earn?
< 10%
10-12.5%
1
5
the average annual return on small-company stocks was about - % greater than the average annual return on large-company stocks 0ver 1926-2007
US t bills
lease volatile from 1926-2007
the greater the risk premium
the greater the volatility of returns,
III & IV
correspond to a wide frequency distribution
I relatively low risk
II low rate of return
III relatively high standard deviation
IV relatively large risk premium
increase the risk premium
to convince investors to accept greater volatility you must,
II & III
if the variability of the returns on large compnay stocks were to increase over the long-term, you would expect which of the following to occur as a result?
I dec in the average rate of return
II increase in the risk premium
III increase in the 68% probab
lower return, long term
long term government bonds had a - - but a higher standard deviation on average than did - corporate bonds
16%
probability that small-company stocks wil produce an annual return that is more then one standard deviation below the average
1%
2.5%
5.0%
16%
32%
6.8%
according to jeremy siegel, the real return on stocks over the long-term has averaged about:
6.8%
8.7%
10.4%
12.3%
14.8%
IV
which is true based on the historical record for 1926-2007
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 t
overestimate, underestimate
estimates of the rate of return on a security based on a historical artihmetic average will probably tend to - the expexted return for the long-term while estimates using the historical geometric average will probably tend to - the expected return for the
project future rates of return
the primary purpose of blumes formula is to
III & IV
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 know the info prior to the announcement
II investors need time to digest th
weak
if you excel in analyzing the future outlook of firms, you would prefer the financial market be- form efficient so that you can have an advantage in the marketplace
semistrong
you are aware that your neighbor trades stocks based on confidential info 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
stong
th us securities and exchange commission periodically charges infividuals with insider trading and claims those individuals have made unfair profits. given this you would be most apt to argure that the markets are less than - form efficient
weak
semiweak
-3.96
one year ago, you purchase a stock at price of $32.16. the stock pays quarterly dividends of $.20 per share. today, the stock is selling for $28.20 per share. what is your capital gain on this investment?
-4.16
-3.96
-3.76
-3.16
-2.96