Question 1

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) B) and E)
G) B) and D)

Question 2

As long as the inflation rate is positive,the real rate of return on a security will be ____ the nominal rate of return.

Accepted Answer

A)  greater than
B)  equal to
C)  less than
D)  greater than or equal to
E)  unrelated toF) None of the above
G) B) and E)

Question 3

You bought one of Great White Shark Repellant Co.'s 10 percent coupon bonds one year ago for $815.These bonds pay annual payments,have a face value of $1,000,and mature 14 years from now.Suppose you decide to sell your bonds today when the required return on the bonds is 14 percent.The inflation rate over the past year was 3.7 percent.What was your total real return on this investment?

Accepted Answer

A)  2.97 percent
B)  1.75 percent
C)  1.18 percent
D)  3.44 percent
E)  2.58 percentF) A) and C)
G) C) and D)

Question 4

According to theory,studying historical stock price movements to identify mispriced stocks:

Accepted Answer

A)  is effective as long as the market is only semistrong form efficient.
B)  is effective provided the market is only weak form efficient.
C)  is ineffective even when the market is only weak form efficient.
D)  becomes ineffective as soon as the market gains semistrong form efficiency.
E)  is ineffective only in strong form efficient markets.F) D) and E)
G) B) and C)

Question 5

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 D)
G) B) and E)

Question 6

Define and explain the three forms of market efficiency.

Accepted Answer

The current stock pr...

Question 7

A stock has annual returns of 6 percent,14 percent,-3 percent,and 2 percent for the past four years.The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.

Accepted Answer

A)  4.57; 4.75
B)  4.75; 4.57
C)  6.33; 6.19
D)  6.19; 6.33
E)  6.33; 6.33F) D) and E)
G) A) and B)

Question 8

The real rate of return on a stock is approximately equal to the nominal rate of return:

Accepted Answer

A)  multiplied by (1 + inflation rate) .
B)  plus the inflation rate.
C)  minus the inflation rate.
D)  divided by (1 + inflation rate) .
E)  divided by (1 - inflation rate) .F) B) and E)
G) B) and C)

Question 9

Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _____ the expected return for the long-term and estimates using the historical geometric average will probably tend to _____ the expected return for the short-term.

Accepted Answer

A)  overestimate; overestimate
B)  overestimate; underestimate
C)  underestimate; overestimate
D)  underestimate; underestimate
E)  accurately; accuratelyF) C) and D)
G) A) and B)

Question 10

West Wind Tours stock is currently selling for $48 a share.The stock has a dividend yield of 3.2 percent.How much dividend income will you receive per year if you purchase 200 shares of this stock?

Accepted Answer

A)  $24.96
B)  $36.20
C)  $424.80
D)  $362.00
E)  $307.20F) A) and B)
G) A) and C)

Question 11

A stock has returns of 18 percent,15 percent,-21 percent,and 6 percent for the past four years.Based on this information,what is the 95 percent probability range of returns for any one given year?

Accepted Answer

A)  -13.56 to 20.56 percent
B)  -24.60 to 31.80 percent
C)  -31.00 to 40.00 percent
D)  -47.68 to 54.68 percent
E)  -71.73 to 71.73 percentF) A) and C)
G) A) and E)

Question 12

The primary purpose of Blume's formula is to:

Accepted Answer

A)  compute an accurate historical rate of return.
B)  determine a stock's true current value.
C)  consider compounding when estimating a rate of return.
D)  determine the actual real rate of return.
E)  project future rates of return.F) None of the above
G) All of the above

Question 13

Efficient financial markets fluctuate continuously because:

Accepted Answer

A)  the markets are continually reacting to old information as that information is absorbed.
B)  the markets are continually reacting to new information.
C)  arbitrage trading is limited.
D)  current trading systems require human intervention.
E)  investments produce varying levels of net present values.F) A) and E)
G) C) and E)

Question 14

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Accepted Answer

A)  1.68 percent
B)  1.72 percent
C)  1.83 percent
D)  1.13 percent
E)  1.21 percentF) A) and D)
G) A) and C)

Question 15

Shawn earned an average return of 14.6 percent on his investments over the past 20 years while the S&P 500,a measure of the overall market,only returned an average of 13.9 percent.Explain how this can occur if the stock market is efficient.

Accepted Answer

An investor can purchase securities that...

Question 16

You just sold 600 shares of Wesley,Inc.stock at a price of $32.04 a share.Last year,you paid $30.92 a share to buy this stock.Over the course of the year,you received dividends totaling $1.20 per share.What is your total capital gain on this investment?

Accepted Answer

A)  -$618
B)  -$672
C)  $672
D)  $618
E)  $720F) A) and B)
G) C) and D)

Question 17

Based on past 23 years,Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Accepted Answer

A)  8.70 percent
B)  8.92 percent
C)  9.13 percent
D)  9.38 percent
E)  10.24 percentF) A) and E)
G) A) and D)

Question 18

A stock had the following prices and dividends.What is the geometric average return on this stock?   Year ‾ Price Dividend 1$16.40−2$16.10$0.503$15.48$0.504$9.15$0.75\begin{array}{l}\underline { 	ext { Year } } 	ext { Price Dividend }\\begin{array} { c c c } 1 & \$ 16.40 & - \2 & \$ 16.10 & \$ 0.50 \3 & \$ 15.48 & \$ 0.50 \4 & \$ 9.15 & \$ 0.75\end{array}\end{array} Year ​ Price Dividend 1234​$16.40$16.10$15.48$9.15​−$0.50$0.50$0.75​​

Accepted Answer

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

Question 19

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) C) and E)
G) A) and E)

Question 20

Over a 30-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 percent.Using Blume's formula,what is your best estimate of the future annual returns over the next 5 years?

Accepted Answer

A)  11.18 percent
B)  12.27 percent
C)  11.84 percent
D)  12.66 percent
E)  12.46 percentF) A) and D)
G) All of the above

Exam 12: Some Lessons From Capital Market History

A stock has annual returns of 6 percent,14 percent,-3 percent,and 2 percent for the past four years.The arithmetic average of these returns is _ percent while the geometric average return for the period is _ percent.

Correct Answer
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Correct Answer
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Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _ the expected return for the long-term and estimates using the historical geometric average will probably tend to _ the expected return for the short-term.

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

Correct Answer
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West Wind Tours stock is currently selling for $48 a share.The stock has a dividend yield of 3.2 percent.How much dividend income will you receive per year if you purchase 200 shares of this stock?

Correct Answer
verified

As long as the inflation rate is positive,the real rate of return on a security will be ____ the nominal rate of return.

Correct Answer
verified

Based on past 23 years,Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Over a 30-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 percent.Using Blume's formula,what is your best estimate of the future annual returns over the next 5 years?

Correct Answer
verified

You just sold 600 shares of Wesley,Inc.stock at a price of $32.04 a share.Last year,you paid $30.92 a share to buy this stock.Over the course of the year,you received dividends totaling $1.20 per share.What is your total capital gain on this investment?

Correct Answer
verified

The real rate of return on a stock is approximately equal to the nominal rate of return:

Correct Answer
verified

Efficient financial markets fluctuate continuously because:

Correct Answer
verified

The primary purpose of Blume's formula is to:

Correct Answer
verified

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Correct Answer
verified

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

According to theory,studying historical stock price movements to identify mispriced stocks:

Correct Answer
verified

Shawn earned an average return of 14.6 percent on his investments over the past 20 years while the S&P 500,a measure of the overall market,only returned an average of 13.9 percent.Explain how this can occur if the stock market is efficient.

Correct Answer
verified
An investor can purchase securities that...
View Answer

Define and explain the three forms of market efficiency.

Correct Answer
verified
The current stock pr...
View Answer

A stock has returns of 18 percent,15 percent,-21 percent,and 6 percent for the past four years.Based on this information,what is the 95 percent probability range of returns for any one given year?

Correct Answer
verified

Exam 12: Some Lessons From Capital Market History

A stock has annual returns of 6 percent,14 percent,-3 percent,and 2 percent for the past four years.The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _____ the expected return for the long-term and estimates using the historical geometric average will probably tend to _____ the expected return for the short-term.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

West Wind Tours stock is currently selling for $48 a share.The stock has a dividend yield of 3.2 percent.How much dividend income will you receive per year if you purchase 200 shares of this stock?

Correct AnswerverifiedShow Answer

As long as the inflation rate is positive,the real rate of return on a security will be ____ the nominal rate of return.

Correct AnswerverifiedShow Answer

Based on past 23 years,Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Over a 30-year period an asset had an arithmetic return of 13 percent and a geometric return of 10.5 percent.Using Blume's formula,what is your best estimate of the future annual returns over the next 5 years?

Correct AnswerverifiedShow Answer

You just sold 600 shares of Wesley,Inc.stock at a price of $32.04 a share.Last year,you paid $30.92 a share to buy this stock.Over the course of the year,you received dividends totaling $1.20 per share.What is your total capital gain on this investment?

Correct AnswerverifiedShow Answer

The real rate of return on a stock is approximately equal to the nominal rate of return:

Correct AnswerverifiedShow Answer

Efficient financial markets fluctuate continuously because:

Correct AnswerverifiedShow Answer

The primary purpose of Blume's formula is to:

Correct AnswerverifiedShow Answer

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Correct AnswerverifiedShow 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

According to theory,studying historical stock price movements to identify mispriced stocks:

Correct AnswerverifiedShow Answer

Shawn earned an average return of 14.6 percent on his investments over the past 20 years while the S&P 500,a measure of the overall market,only returned an average of 13.9 percent.Explain how this can occur if the stock market is efficient.

Correct AnswerverifiedAn investor can purchase securities that...View AnswerShow Answer

Define and explain the three forms of market efficiency.

Correct AnswerverifiedThe current stock pr...View AnswerShow Answer

A stock has returns of 18 percent,15 percent,-21 percent,and 6 percent for the past four years.Based on this information,what is the 95 percent probability range of returns for any one given year?

Correct AnswerverifiedShow Answer

A stock has annual returns of 6 percent,14 percent,-3 percent,and 2 percent for the past four years.The arithmetic average of these returns is _ percent while the geometric average return for the period is _ percent.

Correct Answer
verified

Correct Answer
verified

Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _ the expected return for the long-term and estimates using the historical geometric average will probably tend to _ the expected return for the short-term.

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
An investor can purchase securities that...
View Answer

Correct Answer
verified
The current stock pr...
View Answer

Correct Answer
verified