Question 1

Theta stock returned 2%, -5%, 12%, and 28% for the past four years, respectively. Based on this information, what is the 95% probability range of returns for any one given year?

Accepted Answer

To calculate the 95% probability range of returns for one year, we need to find the mean and standard deviation of the returns for the past four years.

Mean return (μ) = (2% - 5% + 12% + 28%) / 4 = 9.25%

Standard deviation (σ) = √[(2 - 9.25)² + (-5 - 9.25)² + (12 - 9.25)² + (28 - 9.25)² / 4] = 14.45%

Using the formula μ ± 1.96σ, we can find the 95% probability range of returns for one year:

9.25% - 1.96(14.45%) = -19.38%
9.25% + 1.96(14.45%) = 37.88%

Therefore, the 95% probability range of returns for one year is -19.38% to 37.88%. The best choice is B.

Question 2

Over the past four years a stock produced annual returns of 4%, -18%, - 21%, and 48%, respectively. Based on this information, what is the standard deviation for this stock?

Accepted Answer

The answer of Over the past four years a stock...

Question 3

Over the 1970-2005 period, the risk premium on small stocks has averaged ________ per year.

Accepted Answer

Over the 1970-2005 period, the risk premium on small stocks has averaged 7.53% per year. This reflects the additional return investors demanded for taking on the greater risk associated with investing in small-cap stocks compared to more stable, large-cap stocks.

Question 4

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

Accepted Answer

The answer of A stock had the following prices and...

Question 5

Sam purchased a stock for $46.91 one year ago. Today he sold the stock for $48.03. The stock paid a total of $1.40 in dividends over the year. What capital gains yield did Sam realize on this
Investment?

Accepted Answer

To calculate the capital gains yield, we need to use the following formula:

Capital gains yield = (ending price - beginning price + dividends) / beginning price

Plugging in the values given, we get:

Capital gains yield = ($48.03 - $46.91 + $1.40) / $46.91 = 2.39%

Therefore, the best choice is B, with a capital gains yield of 2.39%.

Question 6

Assume that for some period of time corporate bonds had an average rate of return of 5.4% while Treasury bills returned 2.8% and inﬂation averaged 2.7%. Given these assumptions, what is the risk
Premium on corporate bonds?

Accepted Answer

The risk premium is calculated by subtracting the risk-free rate (which is the return on Treasury bills in this case) from the average rate of return on corporate bonds. Therefore, the risk premium on corporate bonds is (5.4% - 2.8%) = 2.6%.

Question 7

If we assume that the annual return on common stocks are normally distributed, then approximately 95% of the returns will fall within the range ___________% if the average historical return is 13.2%
With a standard deviation of 20.3%.

Accepted Answer

The answer of If we assume that the annual return...

Question 8

A stock had returns of 10%, 2%, 8%, 17%, and - 7% for the past ﬁve years. Based on these returns, what is the approximate probability that this stock will return at least 15% in any one given year?

Accepted Answer

The stock returned at least 15% in one year out of the past five years. So, the probability is 1/5 = 20%.

Question 9

Leah Merryweather stock has an expected rate of return of 12.5% and a standard deviation of 26.3%. Which one of the following best describes the probability that this stock will lose 40% or
More in any one given year?

Accepted Answer

We can use the normal distribution to estimate the probability of a loss of 40% or more in any one given year. To do this, we first need to calculate the z-score associated with a loss of 40% relative to the expected return of 12.5%:

z = (40% - 12.5%) / 26.3% = 1.04

Next, we look up the probability associated with a Z-score of 1.04 using a standard normal distribution table, which gives us a probability of approximately 0.1486. However, we need to take into account that we are interested in the probability of a loss of 40% or more, which means we need to calculate the tail probability associated with a Z-score of 1.04:

P(Z ≥ 1.04) = 1 - P(Z < 1.04) ≈ 1 - 0.8514 = 0.1486

Therefore, the probability of a loss of 40% or more in any one given year is approximately 0.1486, or 14.86%. However, the question is asking for the probability as a percentage rounded to one decimal place, which is 2.5% (since the closest option is C).

Question 10

A stock has returns of 5%, 16%, -18%, and 11% for the past four years. Based on this information, what is the 99% probability range for any one given year?

Accepted Answer

The answer of A stock has returns of 5%, 16%,...

Question 11

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

Accepted Answer

The answer of A stock had the following prices and...

Question 12

One year ago, you purchased a stock at a price of $40 a share. Today, you sold the stock and realized a total return of 30%. Your capital gain was $8 a share. What was your dividend yield on
This stock?

Accepted Answer

Dividend yield is the percentage of the stock's annual dividend payment to the stock's current market price. Since the question does not mention any dividend payments, we need to use the formula: 
Total Return = Dividend Yield + Capital Gain Yield
We are given that the total return is 30% and the capital gain yield is $8. Therefore, 
30% = Dividend Yield + ($8/$40)
30% = Dividend Yield + 20%
Dividend Yield = 10%

Question 13

Last year, Sylvia purchased 300 shares of Webster Companies stock at a price of $40.27 per share. Today, those shares are valued at $38.20 a share. Over the last year, Sylvia received total dividend
Income of $450. What is the current dividend yield on Webster stock if the ﬁrm pays a constant
Dividend?

Accepted Answer

The answer of Last year, Sylvia purchased 300 shares of...

Question 14

Federico paid $86.70 for a stock one year ago. Today he sold the stock for $88.20. Over the year, Federico received four quarterly dividends of $0.60 each. What was the dividend yield on this
Investment?

Accepted Answer

The answer of Federico paid $86.70 for a stock one...

Question 15

Over the 1957-2005 period, the risk premium on Canadian common stocks has averaged ______ per year.

Accepted Answer

According to historical data, the risk premium on Canadian common stocks has averaged 4.35% per year over the 1957-2005 period.

Question 16

Use the following historical average returns and standard deviations to answer the question below.  Based on the historical data above, what is your reward for bearing risk of owning small-company stocks rather than Canadian common stocks?

Accepted Answer

The answer of Use the following historical average returns and...

Question 17

Calculate the geometric return of an investment with ﬁve year returns of 10%, 6%, 4%, 2% and (10%).

Accepted Answer

The answer of Calculate the geometric return of an investment...

Question 18

A stock returned 14%, -22%, 3%, and 34% over the past four years, respectively. What is the standard deviation of this stock based on the past four years?

Accepted Answer

The answer of A stock returned 14%, -22%, 3%, and...

Question 19

Your friend is the owner of a stock which had returns of 6%, 17%, and 1% for the past three years. Your friend thinks the stock may be able to achieve a return of 32.6% or more. Based on these
Returns, what is the probability that this stock will earn at least the 32.6% in any one given year?

Accepted Answer

The probability is calculated by dividing the number of years with returns of 32.6% or more by the total number of years. Since none of the past returns reached 32.6%, the probability is 0 out of 3, or 0%. However, since 0% is not an option, the closest choice is 0.5%.

Question 20

One year ago, Valerie purchased a stock at a price of $26 a share. Today, she sold those shares for $26.50 a share. During the past year, she received dividends totaling $0.50 a share while inﬂation
Averaged 2.8%. What is Valerie's real rate of return on this investment?

Accepted Answer

The answer of One year ago, Valerie purchased a stock...

Quiz 12: Some Lessons From Capital Market History

Theta stock returned 2%, -5%, 12%, and 28% for the past four years, respectively. Based on this information, what is the 95% probability range of returns for any one given year?

Over the past four years a stock produced annual returns of 4%, -18%, - 21%, and 48%, respectively. Based on this information, what is the standard deviation for this stock?

Over the 1970-2005 period, the risk premium on small stocks has averaged ________ per year.

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

Sam purchased a stock for $46.91 one year ago. Today he sold the stock for $48.03. The stock paid a total of $1.40 in dividends over the year. What capital gains yield did Sam realize on this Investment?

Assume that for some period of time corporate bonds had an average rate of return of 5.4% while Treasury bills returned 2.8% and inﬂation averaged 2.7%. Given these assumptions, what is the risk Premium on corporate bonds?

If we assume that the annual return on common stocks are normally distributed, then approximately 95% of the returns will fall within the range ___________% if the average historical return is 13.2% With a standard deviation of 20.3%.

A stock had returns of 10%, 2%, 8%, 17%, and - 7% for the past ﬁve years. Based on these returns, what is the approximate probability that this stock will return at least 15% in any one given year?

Leah Merryweather stock has an expected rate of return of 12.5% and a standard deviation of 26.3%. Which one of the following best describes the probability that this stock will lose 40% or More in any one given year?

A stock has returns of 5%, 16%, -18%, and 11% for the past four years. Based on this information, what is the 99% probability range for any one given year?

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

One year ago, you purchased a stock at a price of $40 a share. Today, you sold the stock and realized a total return of 30%. Your capital gain was $8 a share. What was your dividend yield on This stock?

Federico paid $86.70 for a stock one year ago. Today he sold the stock for $88.20. Over the year, Federico received four quarterly dividends of $0.60 each. What was the dividend yield on this Investment?

Over the 1957-2005 period, the risk premium on Canadian common stocks has averaged ______ per year.

Use the following historical average returns and standard deviations to answer the question below. Based on the historical data above, what is your reward for bearing risk of owning small-company stocks rather than Canadian common stocks?

Calculate the geometric return of an investment with ﬁve year returns of 10%, 6%, 4%, 2% and (10%) .

A stock returned 14%, -22%, 3%, and 34% over the past four years, respectively. What is the standard deviation of this stock based on the past four years?

Your friend is the owner of a stock which had returns of 6%, 17%, and 1% for the past three years. Your friend thinks the stock may be able to achieve a return of 32.6% or more. Based on these Returns, what is the probability that this stock will earn at least the 32.6% in any one given year?

One year ago, Valerie purchased a stock at a price of $26 a share. Today, she sold those shares for $26.50 a share. During the past year, she received dividends totaling $0.50 a share while inﬂation Averaged 2.8%. What is Valerie's real rate of return on this investment?