Question 1

You own shares in Yahoo that were purchased at a price of $21 per share.Microsoft has offered to purchase Yahoo and buy your shares at a price of $31 per share.What will be your return if you tender your shares to Microsoft and the deal is completed?

Accepted Answer

A) 31 - 21 = 10; 10 / 21 = 47.62%

Question 2

Which of the following investments offered the highest overall return over the past fifty years?

Accepted Answer

C

Question 3

In Canada over the long term,small stocks on the S&P/TSX have provided the highest return followed by long-term Government of Canada bonds.

Accepted Answer

This statement is true. According to historical data, small stocks on the S&P/TSX have provided the highest return over the long term, followed by long-term Government of Canada bonds.

Question 4

Greg purchased stock in Bear Stearns and Co.at a price of $89 per share.The company was acquired by JP Morgan at a price of $10 per share.What is Greg's return on his investment?

Accepted Answer

A) 10 - 89 = - 79; -79 / 89 = -88.76%

Question 5

Why must riskier investments offer higher expected returns?

Accepted Answer

The answer of Why must riskier investments offer higher expected...

Question 6

Your investment over one year yielded a capital gains yield of 5% and no dividend yield.If the sale price was $119 per share,what was the cost of the investment?

Accepted Answer

C) 119 / 1.05 = 113.33

Question 7

Suppose you invested $45 in TD Bank one month ago.It paid a dividend of $0.60,and you sold it right after the dividend was paid for $44.90.What was your dividend yield and capital gains yield on the investment?

Accepted Answer

A) Div yld = 0.60 / 45 = 1.3%; cap gain = (44.9 - 45)/45 = -0.2%

Question 8

On average,stocks have delivered higher returns than bonds in the long run.

Accepted Answer

Over the long-term, stocks have historically delivered higher returns than bonds. However, stocks also come with higher risk and volatility compared to bonds.

Question 9

Suppose you invested $150 in Tesla Motors one month ago.It paid a dividend of $1.55,and you sold it right after the dividend was paid for $162.What was your realized return from holding the stock?

Accepted Answer

C) Div yld = 1.55 / 150 = 1%; cap gain =(162 - 150)/150 = 8%
Realized return = 1% + 8% = 9%

Question 10

Stocks with high returns are expected to have

Accepted Answer

Stocks with high returns are typically associated with higher levels of risk and uncertainty, which translates to higher variability in their performance. As investors take on more risk in pursuit of higher returns, they must also accept greater fluctuations in the value of their investments.

Question 11

Which of the following investments had the largest fluctuations in overall return over the past fifty years?

Accepted Answer

The S&P/TSX Composite Index is known to be more volatile than the S&P 500 and long-term Government of Canada bonds. Corporate bonds and Treasury bills typically have lower fluctuations and therefore the S&P/TSX Composite Index is the best choice.

Question 12

Suppose you invested $33 in Pfizer one month ago.It paid a dividend of $0.88 and you sold it right after the dividend was paid for $31.14.What was your realized return from holding the stock?

Accepted Answer

D) Div yld = 0.88 / 33 = 2.7%; cap gain = (31.14 - 33)/33 = -5.6%
Realized return = 2.7 - 5.6 = -2.9%

Question 13

Your investment over one year yielded a capital gains yield of 7% and a dividend yield of 4%.If the sale price was $86 per share,what was the cost of the investment?

Accepted Answer

E) Capital gain yield = 7%, 86/1.07 = 80.37

Question 14

Suppose you invested $98 in the Ishares High Yield Fund (HYG)a month ago.It paid a dividend of $0.47 today and then you sold it for $99.What was your dividend yield and capital gains yield on the investment?

Accepted Answer

B) Div yld = 0.47 / 99 = 0.48%; cap gain = 99 - 98 = 1; 1 / 98 = 1.02%

Question 15

Historically,stocks have delivered a ________ return on average compared to Treasury bills but have experienced ________ fluctuations in values.

Accepted Answer

Historically, stocks have delivered higher returns on average compared to Treasury bills, but they have also experienced higher fluctuations in values, reflecting their higher risk and potential for higher reward.

Question 16

Which of the following investments offered the lowest overall return over the past fifty years?

Accepted Answer

Treasury bills are considered to be a safe and low-risk investment, but they typically offer lower returns compared to other types of investments. Over the past fifty years, Treasury bills have consistently offered lower returns compared to the other options listed.

Question 17

Suppose you invested $55 in CIBC stock one month ago.Today,it paid a dividend of $0.35,and then you sold it for $56.25.What was the return on your investment?

Accepted Answer

A) 0.35/55 + (56.25 - 55)/55 = 2.9%

Question 18

Suppose you invested $60 in the Ishares Dividend Stock Fund (DVY)a month ago.It paid a dividend of $0.70 today and then you sold it for $65.What was your return on the investment?

Accepted Answer

C) $(65 + 0.7) - 60 = 5.7; 5.7 / 60 = 9.5%

Question 19

Suppose you invested $7.55 in Big Rock Brewery one month ago.Today,it paid a dividend of $0.10,and then you sold it for $7.35.What was the return on your investment?

Accepted Answer

C) 0.10/7.55 + (7.35 - 7.55)/7.55 = -1.3%

Question 20

Investors demand a higher return for investments that have larger fluctuations in values because

Accepted Answer

Investors demand a higher return for investments that have larger fluctuations in values because they do not like risk. This is because they want to be compensated for taking on the additional risk associated with these investments.

Quiz 10: Risk and Return in Capital Markets