Question 1

Individuals who continually monitor the financial markets seeking mispriced securities:

Accepted Answer

A)  earn excess profits over the long-term.
B)  make the markets increasingly more efficient.
C)  are never able to find a security that is temporarily mispriced.
D)  are overwhelmingly successful in earning abnormal profits.
E)  are always quite successful using only historical price information as their basis of evaluation.F) C) and D)
G) A) and D)

Question 2

If you excel in analyzing the future outlook of firms, you would prefer the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Accepted Answer

A)  weak
B)  semiweak
C)  semistrong
D)  strong
E)  perfectF) A) and C)
G) A) and E)

Question 3

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?

Accepted Answer

A)  -24.20 percent
B)  -27.67 percent
C)  -20.00 percent
D)  20.00 percent
E)  24.20 percentF) C) and D)
G) A) and D)

Question 4

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?

Accepted Answer

A)  less than 0.5 percent
B)  greater than 0.5 percent but less than 1.0 percent
C)  greater than 1.0 percent but less than 2.5 percent
D)  greater than 2.5 percent but less than 16 percent
E)  greater than 16.0 percentF) D) and E)
G) A) and D)

Question 5

A stock had the following prices and dividends.What is the geometric average return on this stock?

Accepted Answer

A)  -15.87 percent
B)  -13.71 percent
C)  -13.33 percent
D)  -12.91 percent
E)  -11.48 percentF) B) and E)
G) C) and E)

Question 6

Which one of the following categories of securities has had the most volatile returns over the period 1926-2010?

Accepted Answer

A)  long-term corporate bonds
B)  large-company stocks
C)  intermediate-term government bonds
D)  U.S.Treasury bills
E)  small-company stocksF) A) and B)
G) C) and D)

Question 7

What is the amount of the risk premium on a U.S.Treasury bill if the risk-free rate is 2.8 percent and the market rate of return is 8.35 percent?

Accepted Answer

A)  0.00 percent
B)  2.80 percent
C)  5.55 percent
D)  8.35 percent
E)  11.15 percentF) A) and E)
G) None of the above

Question 8

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?

Accepted Answer

A)  $15
B)  $30
C)  $45
D)  $50
E)  $60F) A) and D)
G) A) and C)

Question 9

The U.S.Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits.Given this, you would be most apt to argue that the markets are less than _____ form efficient.

Accepted Answer

A)  weak
B)  semiweak
C)  semistrong
D)  strong
E)  perfectF) B) and E)
G) A) and E)

Question 10

Which one of the following is a correct ranking of securities based on their volatility over the period of 1926-2010? Rank from highest to lowest.

Accepted Answer

A)  large company stocks, U.S.Treasury bills, long-term government bonds
B)  small company stocks, long-term corporate bonds, large company stocks
C)  small company stocks, long-term corporate bonds, intermediate-term government bonds
D)  large company stocks, small company stocks, long-term government bonds
E)  intermediate-term government bonds, long-term corporate bonds, U.S.Treasury billsF) C) and D)
G) All of the above

Question 11

The average compound return earned per year over a multi-year period is called the _____ average return.

Accepted Answer

A)  arithmetic
B)  standard
C)  variant
D)  geometric
E)  realF) B) and D)
G) B) and E)

Question 12

Which one of the following statements is correct concerning market efficiency?

Accepted Answer

A)  Real asset markets are more efficient than financial markets.
B)  If a market is efficient, arbitrage opportunities should be common.
C)  In an efficient market, some market participants will have an advantage over others.
D)  A firm will generally receive a fair price when it issues new shares of stock.
E)  New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock.F) A) and B)
G) A) and E)

Question 13

A stock has annual returns of 5 percent, 21 percent, -12 percent, 7 percent, and -6 percent for the past five years.The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.

Accepted Answer

A)  3.89; 3.62
B)  3.89; 4.60
C)  3.62; 3.89
D)  4.60; 3.62
E)  4.60; 3.89F) A) and E)
G) A) and D)

Question 14

How can an investor lose money on a stock while making money on a bond investment if there is a reward for bearing risk? Aren't stocks riskier than bonds?

Accepted Answer

There is a reward for bearing risk over ...

Question 15

Inside information has the least value when financial markets are:

Accepted Answer

A)  weak form efficient.
B)  semiweak form efficient.
C)  semistrong form efficient.
D)  strong form efficient.
E)  inefficient.F) B) and C)
G) C) and D)

Question 16

A stock had returns of 15 percent, 8 percent, 12 percent, -15 percent, and -4 percent for the past five years.Based on these returns, what is the approximate probability that this stock will return at least 20 percent in any one given year?

Accepted Answer

A)  less than 0.5 percent
B)  greater than 0.5 percent but less than 1.0 percent
C)  greater than 1.0 percent but less than 2.5 percent
D)  greater than 2.5 percent but less than 16 percent
E)  greater than 16.0 percentF) A) and B)
G) B) and E)

Question 17

What was the highest annual rate of inflation during the period 1926-2010?

Accepted Answer

A)  between 0 and 3 percent
B)  between 3 and 5 percent
C)  between 5 and 10 percent
D)  between 10 and 15 percent
E)  between 15 and 20 percentF) A) and B)
G) B) and D)

Question 18

Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately.If the dividend yield remains at its pre-announcement level, then you know the stock price:

Accepted Answer

A)  was unaffected by the announcement.
B)  increased proportionately with the dividend decrease.
C)  decreased proportionately with the dividend decrease.
D)  decreased by $0.14 per share.
E)  increased by $0.14 per share.F) All of the above
G) B) and C)

Question 19

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.

Accepted Answer

A)  weak
B)  semiweak
C)  semistrong
D)  strong
E)  perfectF) B) and D)
G) D) and E)

Question 20

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

Accepted Answer

A)  I and II only
B)  I and III only
C)  II and III only
D)  II and IV only
E)  III and IV onlyF) None of the above
G) B) and D)

Exam 12: Return, Risk and the Security Market

Correct Answer
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A stock had the following prices and dividends.What is the geometric average return on this stock?

Correct Answer
verified

The average compound return earned per year over a multi-year period is called the _____ average return.

Correct Answer
verified

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?

Correct Answer
verified

Correct Answer
verified

What was the highest annual rate of inflation during the period 1926-2010?

Correct Answer
verified

Inside information has the least value when financial markets are:

Correct Answer
verified

Which one of the following statements is correct concerning market efficiency?

Correct Answer
verified

Individuals who continually monitor the financial markets seeking mispriced securities:

Correct Answer
verified

A stock had returns of 15 percent, 8 percent, 12 percent, -15 percent, and -4 percent for the past five years.Based on these returns, what is the approximate probability that this stock will return at least 20 percent in any one given year?

Correct Answer
verified

If you excel in analyzing the future outlook of firms, you would prefer the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Correct Answer
verified

Correct Answer
verified

Which one of the following categories of securities has had the most volatile returns over the period 1926-2010?

Correct Answer
verified

What is the amount of the risk premium on a U.S.Treasury bill if the risk-free rate is 2.8 percent and the market rate of return is 8.35 percent?

Correct Answer
verified

How can an investor lose money on a stock while making money on a bond investment if there is a reward for bearing risk? Aren't stocks riskier than bonds?

Correct Answer
verified
There is a reward for bearing risk over ...
View Answer

Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately.If the dividend yield remains at its pre-announcement level, then you know the stock price:

Correct Answer
verified

Which one of the following is a correct ranking of securities based on their volatility over the period of 1926-2010? Rank from highest to lowest.

Correct Answer
verified

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?

Correct Answer
verified

The U.S.Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits.Given this, you would be most apt to argue that the markets are less than _____ form efficient.

Correct Answer
verified

A stock has annual returns of 5 percent, 21 percent, -12 percent, 7 percent, and -6 percent for the past five years.The arithmetic average of these returns is _ percent while the geometric average return for the period is _ percent.

Correct Answer
verified

Exam 12: Return, Risk and the Security Market

Correct AnswerverifiedShow Answer

A stock had the following prices and dividends.What is the geometric average return on this stock?

Correct AnswerverifiedShow Answer

The average compound return earned per year over a multi-year period is called the _____ average return.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What was the highest annual rate of inflation during the period 1926-2010?

Correct AnswerverifiedShow Answer

Inside information has the least value when financial markets are:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning market efficiency?

Correct AnswerverifiedShow Answer

Individuals who continually monitor the financial markets seeking mispriced securities:

Correct AnswerverifiedShow Answer

A stock had returns of 15 percent, 8 percent, 12 percent, -15 percent, and -4 percent for the past five years.Based on these returns, what is the approximate probability that this stock will return at least 20 percent in any one given year?

Correct AnswerverifiedShow Answer

If you excel in analyzing the future outlook of firms, you would prefer the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following categories of securities has had the most volatile returns over the period 1926-2010?

Correct AnswerverifiedShow Answer

What is the amount of the risk premium on a U.S.Treasury bill if the risk-free rate is 2.8 percent and the market rate of return is 8.35 percent?

Correct AnswerverifiedShow Answer

How can an investor lose money on a stock while making money on a bond investment if there is a reward for bearing risk? Aren't stocks riskier than bonds?

Correct AnswerverifiedThere is a reward for bearing risk over ...View AnswerShow Answer

Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately.If the dividend yield remains at its pre-announcement level, then you know the stock price:

Correct AnswerverifiedShow Answer

Which one of the following is a correct ranking of securities based on their volatility over the period of 1926-2010? Rank from highest to lowest.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The U.S.Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits.Given this, you would be most apt to argue that the markets are less than _____ form efficient.

Correct AnswerverifiedShow Answer

A stock has annual returns of 5 percent, 21 percent, -12 percent, 7 percent, and -6 percent for the past five years.The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
verified

Correct Answer
verified
There is a reward for bearing risk over ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A stock has annual returns of 5 percent, 21 percent, -12 percent, 7 percent, and -6 percent for the past five years.The arithmetic average of these returns is _ percent while the geometric average return for the period is _ percent.

Correct Answer
verified