Question 1

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

Accepted Answer

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Question 2

A stock had returns of 8%,14%,and 2% for the past three years. Based on these returns,what is the probability that this stock will earn at least 20% in any one given year?

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Question 3

A stock has an expected rate of return of 8.3% and a standard deviation of 6.4%. Which one of the following best describes the probability that this stock will lose 11% or more in any one given year?

Accepted Answer

The probability of losing 11% or more can be calculated using the normal distribution. The z-score for -11% is (-11% - 8.3%) / 6.4% = -3.03125. A z-score of -3.03125 corresponds to a probability of less than 0.5% in the standard normal distribution.

Question 4

What are the arithmetic and geometric average returns for a stock with annual returns of 21%,8%,-32%,41%,and 5%?

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Question 5

A stock had returns of 8%,39%,11%,and -24% for the past four years. Which one of the following best describes the probability that this stock will NOT lose more than 43% in any one given year?

Accepted Answer

The probability that the stock will not lose more than 43% in any given year is 97.5%, assuming a normal distribution of returns. This is because a 43% loss is more than two standard deviations away from the mean in a normal distribution, which corresponds to a 97.5% probability of not exceeding this loss.

Question 6

What are the arithmetic and geometric average returns for a stock with annual returns of 4%,9%,-6%,and 18%?

Accepted Answer

Arithmetic average return = (4% + 9% - 6% + 18%) / 4 = 6.25%
Geometric average return = [(1 + 0.04) x (1 + 0.09) x (1 - 0.06) x (1 + 0.18)]^(1/4) - 1 = 5.89%

Therefore, the correct answer is B.

Question 7

Excelsior share are currently selling for $25 each. You bought 200 shares one year ago at $24 and received dividend payments of $1.50 per share. What was your total rate of return?

Accepted Answer

To calculate the total rate of return, use the following formula:

Total Rate of Return = (Ending Value - Beginning Value + Dividends) / Beginning Value

The beginning value is the number of shares multiplied by the purchase price:

200 shares x $24/share = $4,800

The ending value is the number of shares multiplied by the current share price:

200 shares x $25/share = $5,000

The dividends received are the dividend per share multiplied by the number of shares:

$1.50/share x 200 shares = $300

Now plug these values into the formula:

Total Rate of Return = ($5,000 - $4,800 + $300) / $4,800 = 10.42%

Therefore, the correct answer is C) 10.42%.

Question 8

A stock had returns of 6%,13%,-11%,and 17% over the past four years. What is the geometric average return for this time period?

Accepted Answer

Geometric mean can be calculated by multiplying all the returns and then taking the nth root of the product, where n is the number of returns. 
Thus, Geometric mean =(1.06×1.13×0.89×1.17)(¼)−1=1.057−1=0.057, or 5.7% rounded to one decimal point. 
Therefore, the correct answer is B) 5.7%.

Question 9

You purchased 300 shares of Deltona,Inc. stock for $44.90 a share. You have received a total of $630 in dividends and $14,040 in proceeds from selling the shares. What is your capital gains yield on this stock?

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Question 10

A stock had returns of 8%,-2%,4%,and 16% over the past four years. What is the standard deviation of this stock for the past four years?

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Question 11

A stock has returns of 3%,18%,-24%,and 16% for the past four years. Based on this information,what is the 95% probability range for any one given year?

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Question 12

You bought 100 shares of stock at $20 each. At the end of the year,you received a total of $400 in dividends,and your stock was worth $2,500 total. What was your total dollar capital gain and total dollar return?

Accepted Answer

Total dollar capital gain = (Total stock value at the end of the year) - (Total cost of buying the stocks)
Total dollar capital gain = $2,500 - (100 * $20) = $2,500 - $2,000 = $500

Total dollar return = (Total dollar capital gain) + (Total dividends received)
Total dollar return = $500 + $400 = $900

Therefore, the correct answer is C) $500; $900.

Question 13

You bought 100 shares of stock at $20 each. At the end of the year,you received a total of $400 in dividends,and your stock was worth $2,500 total. What was your total return?

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Question 14

A stock had returns of 11%,1%,9%,15%,and -6% for the past five years. Based on these returns,what is the approximate probability that this stock will earn at least 23% in any one given year?

Accepted Answer

The probability of earning at least 23% is based on the historical data provided. Since none of the past returns reached 23%, we assume a normal distribution and calculate the probability using the standard deviation and mean of the returns. This results in a low probability, approximately 2.5%.

Question 15

Excelsior shares are currently selling for $25 each. You bought 200 shares one year ago at $24 and received dividend payments of $1.50 per share. What was your percentage capital gain this year?

Accepted Answer

The capital gain is calculated as the difference in the selling price and the purchase price, divided by the purchase price. Here, the capital gain is ($25 - $24) / $24 = 0.0417, or 4.17%. Dividends are not included in capital gain calculations.

Question 16

Eight months ago,you purchased 400 shares of Winston,Inc. stock at a price of $54.90 a share. The company pays quarterly dividends of $.50 a share. Today,you sold all of your shares for $49.30 a share. What is your total percentage return on this investment?

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Question 17

Over the past five years,a stock produced returns of 14%,22%,-16%,2%,and 10%. What is the probability that an investor in this stock will NOT lose more than 8% nor earn more than 21% in any one given year?

Accepted Answer

The returns that fall within the range of not losing more than 8% and not earning more than 21% are 14%, 2%, and 10%. This is 3 out of 5 years, which is 60%. However, the closest choice is 68%, which is a common approximation for one standard deviation in a normal distribution, suggesting a misunderstanding in the problem setup or choices.

Question 18

Today,you sold 200 shares of SLG,Inc. stock. Your total return on these shares is 12.5%. You purchased the shares one year ago at a price of $28.50 a share. You have received a total of $280 in dividends over the course of the year. What is your capital gains yield on this investment?

Accepted Answer

Capital gains yield = (Capital gains + Dividends) / Initial investment= ((35 - 28.5) * 200 + 280) / (28.5 * 200)= (1300 + 280) / 5700= 1580 / 5700= 0.277= 27.7%= 7.59%

Question 19

Six months ago,you purchased 1,200 shares of ABC stock for $21.20 a share. You have received dividend payments equal to $.60 a share. Today,you sold all of your shares for $22.20 a share. What is your total dollar return on this investment?

Accepted Answer

The total dollar return is calculated by adding the capital gain and the dividend income. The capital gain is ($22.20 - $21.20) * 1,200 = $1,200. The dividend income is $0.60 * 1,200 = $720. Therefore, the total dollar return is $1,200 + $720 = $1,920.

Question 20

You just sold 200 shares of Langley,Inc. stock at a price of $38.75 a share. Last year you paid $41.50 a share to buy this stock. Over the course of the year,you received dividends totaling $1.64 per share. What is your capital gain on this investment?

Accepted Answer

The capital gain is calculated as the difference between the selling price and the purchase price, multiplied by the number of shares. Here, it is (38.75 - 41.50) * 200 = -$550. Dividends are not included in capital gain calculations.

Quiz 10: Risk and Return: Lessons From Market History