Question 1

Over the past six years,a stock had annual returns of 18 percent,-6 percent,2 percent,27 percent,-11 percent,and 13 percent,respectively.What is the standard deviation of these returns?

Accepted Answer

To find the standard deviation, we first need to find the mean return:

Mean = (18 - 6 + 2 + 27 - 11 + 13) / 6 = 43 / 6 = 7.17%

Next, we need to find the deviation for each return by subtracting the mean from each return:

18 - 7.17 = 10.83
-6 - 7.17 = -13.17
2 - 7.17 = -5.17
27 - 7.17 = 19.83
-11 - 7.17 = -18.17
13 - 7.17 = 5.83

Then, we square each deviation, and find the average of these squared deviations:

[ (10.83)^2 + (-13.17)^2 + (-5.17)^2 + (19.83)^2 + (-18.17)^2 + (5.83)^2 ] / 6 = 270.89

Finally, we take the square root of the average of the squared deviations:

sqrt(270.89 / 6) = 2.41

Therefore, the standard deviation is 2.41%, or 14.66% when expressed as a percentage of the mean. Thus, the best choice is (B).

Question 2

One year ago,Debra purchased 5,400 shares of KNF stock for $218,056.Today,she sold those shares for $19.49 a share.What is the capital gains yield on this investment if the dividend yield is 1.7 percent?

Accepted Answer

First, we need to find the total selling price of the shares:

$19.49/share x 5,400 shares = $105,246

Next, we need to determine how much Debra originally paid for the shares:

$218,056/5,400 shares = $40.38/share

Now we can calculate the total cost basis:

$40.38/share x 5,400 shares = $218,056

We also need to calculate the total dividends earned:

1.7% x $218,056 = $3,710.95

Now we can calculate the capital gains yield:

Capital Gains Yield = (Total Selling Price - Total Cost Basis - Total Dividends) / Total Cost Basis

= ($105,246 - $218,056 - $3,710.95) / $218,056

= -$117,520.95 / $218,056

= -0.538 or -53.8%

Therefore, the closest answer is D, -51.73%.

Question 3

Assume that large-company stocks had an average rate of return of 12.1 percent over the past 88 years while T-bills returned an average of 3.5 percent and inflation averaged 3.0 percent.Given this,the real return on large-company stocks was:

Accepted Answer

The answer of Assume that large-company stocks had an average...

Question 4

Assume large-company stocks returned 12.1 percent on average over the past 88 years.The risk premium on these stocks was 8.6 percent and the inflation rate was 3.0 percent.What was the average nominal risk-free rate of return for those 88 years?

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The answer of Assume large-company stocks returned 12.1 percent on...

Question 5

One year ago,you purchased 600 shares of stock for $14 a share.The stock pays $.41 a share in dividends each year.Today,you sold your shares for $15.30 a share.What is your total dollar return on this investment?

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The answer of One year ago,you purchased 600 shares of...

Question 6

Over the past five years,a stock returned 6.2 percent,-10.4 percent,-2.2 percent,16.9 percent,and 5.8 percent,respectively.What is the variance of these returns?

Accepted Answer

1. Calculate the average return over the five years:

(6.2 - 10.4 - 2.2 + 16.9 + 5.8) / 5 = 3.26

2. Calculate the deviation of each year's return from the average:

6.2 - 3.26 = 2.94

-10.4 - 3.26 = -13.66

-2.2 - 3.26 = -5.46

16.9 - 3.26 = 13.64

5.8 - 3.26 = 2.54

3. Square each deviation:

2.94^2 = 8.6436

(-13.66)^2 = 186.1156

(-5.46)^2 = 29.8516

13.64^2 = 186.2896

2.54^2 = 6.4516

4. Calculate the average of the squared deviations:

(8.6436 + 186.1156 + 29.8516 + 186.2896 + 6.4516) / 5 = 08351

Therefore, the variance of these returns is 10439.

Question 7

Windsor stock has produced returns of 13.8 percent,11.7 percent,2.3 percent,-21.4 percent,and 8.9 percent over the past five years,respectively.What is the variance of these returns?

Accepted Answer

The answer of Windsor stock has produced returns of 13.8...

Question 8

One year ago,Peyton purchased 7,200 shares of Broncos stock for $329,640.Today,he sold those shares for $58.92 a share.What is the total return on this investment if the dividend yield is 2.2 percent?

Accepted Answer

First, we need to calculate the total amount earned from selling the shares:
$58.92/share x 7,200 shares = $424,704

Next, we need to calculate the amount earned from dividends:
Dividend yield = 2.2% = 0.022
Dividend earned per share = $58.92 x 0.022 = $1.296
Total dividend earned = $1.296/share x 7,200 shares = $9,331.20

The total return on the investment is the sum of the amount earned from selling the shares and the amount earned from dividends, minus the initial investment:
Total return = ($424,704 + $9,331.20) - $329,640 = $104,395.20

Finally, we need to calculate the percentage return on the investment:
Percentage return = (Total return / Initial investment) x 100%
Percentage return = ($104,395.20 / $329,640) x 100% = 31.63%

Therefore, the best answer choice is B) 30.89 percent (rounded to two decimal places).

Question 9

Assume that over the past 88 years,U.S.Treasury bills had an average return of 3.5 percent as compared to 6.1 percent on long-term government bonds.During this same time period,assume inflation averaged 3.0 percent.What was the average nominal risk premium on the long-term government bonds?

Accepted Answer

The answer of Assume that over the past 88 years,U.S.Treasury...

Question 10

The Bermuda Triangle Store pays a constant dividend.Last year,the dividend yield was 4.0 percent when the stock was selling for $16 a share.What must the stock price be today if the market currently requires a 4.3 percent dividend yield on this stock?

Accepted Answer

The answer of The Bermuda Triangle Store pays a constant...

Question 11

Sarah earned a 3.3 percent real rate of return on her investments for the past year.During that time,the risk-free rate was 3.6 percent and the inflation rate was 3.1 percent.What was her nominal rate of return?

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The answer of Sarah earned a 3.3 percent real rate...

Question 12

Based on the past 88 years,the inflation rate averaged 3.0 percent and the U.S.Treasury bill yield was 3.5 percent,and the historical risk premium on small-company stocks was 13.2 percent.If these averages hold,what nominal rate of return should you expect to earn on small-company stocks over the next several years?

Accepted Answer

The nominal rate of return on small-company stocks can be calculated as:
Nominal rate of return = Inflation rate + Treasury bill yield + Risk premium on small-company stocks
= 3.0% + 3.5% + 13.2%
= 19.7%
Therefore, the expected nominal rate of return on small-company stocks is 19.7%, which corresponds to option B.

Question 13

The stock of Southern United is priced at $52 a share and has a dividend yield of 3.6 percent.The firm pays constant annual dividends.What is the amount of the next dividend per share?

Accepted Answer

Dividend yield is the ratio of annual dividend to the stock price.
So, Annual dividend = (Dividend yield/100) * Stock price
= (3.6/100) * 52
= $1.872
Therefore, the amount of the next dividend per share is $1.872, which corresponds to choice C.

Question 14

Assume that last year,Isaac earned 13.6 percent on his investments while U.S.Treasury bills yielded 2.7 percent,and the inflation rate was 2.2 percent.What real rate of return did he earn on his investments last year?

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The answer of Assume that last year,Isaac earned 13.6 percent...

Question 15

One year ago,you purchased a 6 percent coupon bond with a face value of $1,000 when it was selling for 98.6 percent of par.Today,you sold this bond for 101.2 percent of par.What is your total dollar return on this investment?

Accepted Answer

The answer of One year ago,you purchased a 6 percent...

Question 16

One year ago,LaTresa purchased 300 shares of Outland Co.stock for $7,092.The stock does not pay any regular dividends but it did pay a special dividend of $.43 a share last week.This morning,she sold her shares for $24.05 a share.What was the total percentage return on this investment?

Accepted Answer

The answer of One year ago,LaTresa purchased 300 shares of...

Question 17

A stock has produced returns of 19 percent,6 percent,-21 percent,-2 percent,and 14 percent for the past five years,respectively.What is the standard deviation of these returns?

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The answer of A stock has produced returns of 19...

Question 18

Five years ago,you purchased 800 shares of stock.The annual returns have been 6.4 percent,-28.7 percent,2.1 percent,14.4 percent,and 32.6 percent,respectively.What is the variance of these returns?

Accepted Answer

The answer of Five years ago,you purchased 800 shares of...

Question 19

Hercules Movers pays a constant annual dividend of $1.48 per share on its stock.Last year at this time,the market rate of return on this stock was 15.7 percent.Today,the market rate has fallen to 13.3 percent.What would your capital gains yield have been if you had purchased this stock one year ago and then sold the stock today?

Accepted Answer

The answer of Hercules Movers pays a constant annual dividend...

Question 20

Cox Footwear pays a constant annual dividend.Last year,the dividend yield was 3.2 percent when the stock was selling for $35a share.What is the current price of the stock if the current dividend yield is 2.9 percent?

Accepted Answer

The answer of Cox Footwear pays a constant annual dividend.Last...

Quiz 10: Some Lessons From Capital Market History