Question 1

How much of total world stock market capitalization is from the United States in 2008?
A)approximately 10%
B)approximately 25%
C)approximately 45%
D)approximately 57%
E)approximately 72%

Accepted Answer

In 2008, the United States accounted for approximately 45% of the total world stock market capitalization.

Question 2

Six months ago, you purchased 100 shares of stock in ABC Co.at a price of $43.89 a share.ABC stock pays a quarterly dividend of $.10 a share.Today, you sold all of your shares for $45.13 per share.What is the total amount of your capital gains on this investment?
A)$1.24
B)$1.64
C)$40.00
D)$124.00
E)$164.00

Accepted Answer

The answer of Six months ago, you purchased 100 shares...

Question 3

The risk premium is computed by ______ the average return for the investment.
A)subtracting the inflation rate from
B)adding the inflation rate to
C)subtracting the average return on the U.S.Treasury bill from
D)adding the average return on the U.S.Treasury bill to
E)subtracting the average return on long-term government bonds from

Accepted Answer

The risk premium is the excess return an investor expects to receive over and above the risk-free rate of return (which is typically the average return on the U.S. Treasury bill) in order to compensate for the additional risk involved in the investment. So, the risk premium is computed by subtracting the average return on the U.S. Treasury bill from the average return for the investment.

Question 4

A year ago, you purchased 300 shares of IXC Technologies, Inc.stock at a price of $9.03 per share.The stock pays an annual dividend of $.10 per share.Today, you sold all of your shares for $28.14 per share.What is your total dollar return on this investment?
A)$5,703
B)$5,733
C)$5,753
D)$5,763
E)$5,853

Accepted Answer

First, we need to calculate the total cost of purchasing the 300 shares:

300 shares * $9.03 per share = $2,709

Next, we need to calculate the total amount of dividends received:

300 shares * $0.10 per share = $30

To calculate the total dollar return, we need to subtract the total cost from the total proceeds:

300 shares * $28.14 per share = $8,442

Total dollar return = $8,442 - $2,709 + $30 = $5,763

Therefore, the correct answer is (D) $5,763.

Question 5

The Zolo Co.just declared that it is increasing its annual dividend from $1.00 per share to $1.25 per share.If the stock price remains constant, then:
A)the capital gains yield will decrease.
B)the capital gains yield will increase.
C)the dividend yield will increase.
D)the dividend yield will also remain constant.
E)neither the capital gains yield nor the dividend yield will change.

Accepted Answer

The dividend yield will increase because the annual dividend per share has increased while the stock price remains constant. The capital gains yield is the change in stock price, which in this case is assumed to remain constant. Therefore, the capital gains yield will not change.

Question 6

Capital market history shows us that the average return relationship from lowest to highest between securities is:
A)inflation, corporate bonds, Treasuries, small company stocks, large company stocks.
B)Treasury bills, inflation, small company stocks, large company stocks.
C)Treasury bills, corporate bonds, government bonds, large common stocks, small company stocks.
D)Treasury bills, government bonds, corporate bonds, large common stocks, small company stocks.
E)There is no ordering.

Accepted Answer

Capital market history shows that Treasury bills have the lowest average return, followed by government bonds, corporate bonds, large common stocks, and small company stocks having the highest average return. This ordering is also known as the "risk-return tradeoff," which suggests that investors can expect higher returns in exchange for taking on higher levels of risk.

Question 7

In estimating the future equity risk premium, it is important to include assumptions about:
A)the historical distribution of returns on derivative securities.
B)the future risk environment.
C)the amount of risk aversion of future investors.
D)A and B.
E)B and C.

Accepted Answer

The future equity risk premium can be influenced by the future risk environment and the amount of risk aversion of future investors. Historical distribution of returns on derivative securities is not directly relevant to estimating the equity risk premium.

Question 8

The dollar value of the world stock market capitalization, from largest to smallest is:
A)Europe, United States, United Kingdom, Japan
B)United States, Japan, Europe, United Kingdom
C)United States, Europe, Japan, United Kingdom
D)Japan, United States, Europe, United Kingdom
E)Japan, United States, United Kingdom, Europe

Accepted Answer

The current order of world stock market capitalization from largest to smallest is United States, followed by Europe, then Japan, and finally United Kingdom. Choice C lists these countries in the correct order.

Question 9

One year ago, you purchased a stock at a price of $32 a share.Today, you sold the stock and realized a total return of 25%.Your capital gain was $6 a share.What was your dividend yield on this stock?
A)1.25%
B)3.75%
C)6.25%
D)18.75%
E)21.25%

Accepted Answer

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

Question 10

Estimates using the arithmetic average will probably tend to _____ values over the long-term while estimates using the geometric average will probably tend to _____ values over the short-term.
A)overestimate; overestimate
B)overestimate; underestimate
C)underestimate; overestimate
D)underestimate; underestimate
E)accurately; accurately

Accepted Answer

The answer of Estimates using the arithmetic average will probably...

Question 11

In predicting the expected future return of the market, one of the dangers is that:
A)the past is not indicative of the future.
B)the past period measured is too short to get a reasonable estimate of the future.
C)the equity premium does not include the premium on debt.
D)A and B.
E)A and C.

Accepted Answer

The past may not accurately predict the future, and measuring returns over too short of a period can also lead to inaccurate predictions. Therefore, both choices A and B are correct. Choice C regarding equity premium and debt premium is not directly related to the question of predicting future market returns.

Question 12

The standard deviation on small company stocks:
I.is greater than the standard deviation on large company stocks.
II.is less than the standard deviation on large company stocks.
III.had an average value of about 33% for the period 1926 to 2008.
IV.had an average value of about 20% for the period 1926 to 2008.
A)I and III only
B)I and II only
C)II and III only
D)II and IV only
E)I and IV only

Accepted Answer

Small company stocks generally have higher volatility than large company stocks, making their standard deviation greater. Historical data shows an average standard deviation of about 33% for small company stocks from 1926 to 2008.

Question 13

One year ago, you purchased a stock at a price of $32.50.The stock pays quarterly dividends of $.40 per share.Today, the stock is worth $34.60 per share.What is the total amount of your dividend income to date from this investment?
A)$0.40
B)$1.60
C)$2.10
D)$2.50
E)$3.70

Accepted Answer

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

Question 14

A capital gain occurs when:
A)the selling price is less than the purchase price.
B)the purchase price is less than the selling price.
C)there is no dividend paid.
D)there is no income component of return.
E)never, as they can not exist.

Accepted Answer

A capital gain occurs when the selling price of an asset is higher than the purchase price, resulting in a profit on the investment. Therefore, choice B, "the purchase price is less than the selling price," is the correct answer. None of the other options accurately describe a capital gain.

Question 15

You purchased 200 shares of stock at a price of $36.72 per share.Over the last year, you have received total dividend income of $322.What is the dividend yield?
A)3.2%
B)4.4%
C)6.8%
D)9.2%
E)11.4%

Accepted Answer

Dividend yield can be calculated as follows:
Dividend Yield = (Dividend income/Total cost of investment) x 100
Total cost of investment = number of shares x price per share = 200 x $36.72 = $7,344
Dividend Yield = ($322/$7,344) x 100 = 4.38% which rounds to 4.4%
Therefore, the correct answer is B, 4.4%.

Question 16

The variance of returns is computed by dividing the sum of the:
A)squared deviations by the number of returns minus one.
B)average returns by the number of returns minus one.
C)average returns by the number of returns plus one.
D)squared deviations by the average rate of return.
E)squared deviations by the number of returns plus one.

Accepted Answer

The formula for calculating variance is the sum of squared deviations divided by the degrees of freedom (number of returns minus one).

Question 17

Which of the following statements concerning the standard deviation are correct?
I.The greater the standard deviation, the lower the risk.
II.The standard deviation is a measure of volatility.
III.The higher the standard deviation, the less certain the rate of return in any one given year.
IV.The higher the standard deviation, the higher the expected return.
A)I and III only
B)II, III, and IV only
C)I, III, and IV only
D)I, II, and III only
E)I, II, III, and IV

Accepted Answer

Statement I is incorrect because higher standard deviation indicates higher risk. Statement II is correct because standard deviation measures the variability or volatility of returns. Statement III is correct because higher standard deviation means greater uncertainty in returns. Statement IV is incorrect because there is no direct relationship between the standard deviation and expected return.

Question 18

Which country has the lowest stock market risk premium?
A)Denmark
B)Belgium
C)Switzerland
D)Spain
E)Norway

Accepted Answer

The answer of Which country has the lowest stock market...

Question 19

Winslow, Inc.stock is currently selling for $40 a share.The stock has a dividend yield of 3.8%.How much dividend income will you receive per year if you purchase 500 shares of this stock?
A)$152
B)$190
C)$329
D)$760
E)$1,053

Accepted Answer

The answer of Winslow, Inc.stock is currently selling for $40...

Question 20

Which of the following statements are correct concerning the variance of the annual returns on an investment?
I.The larger the variance, the more the actual returns tend to differ from the average return.
II.The larger the variance, the larger the standard deviation.
III.The larger the variance, the greater the risk of the investment.
IV.The larger the variance, the higher the expected return.
A)I and III only
B)II, III, and IV only
C)I, III, and IV only
D)I, II, and III only
E)I, II, III, and IV

Accepted Answer

The answer of Which of the following statements are correct...

Quiz 10: Risk and Return: Lessons From Market History

How much of total world stock market capitalization is from the United States in 2008?

Six months ago, you purchased 100 shares of stock in ABC Co.at a price of $43.89 a share.ABC stock pays a quarterly dividend of $.10 a share.Today, you sold all of your shares for $45.13 per share.What is the total amount of your capital gains on this investment?

The risk premium is computed by ______ the average return for the investment.

A year ago, you purchased 300 shares of IXC Technologies, Inc.stock at a price of $9.03 per share.The stock pays an annual dividend of $.10 per share.Today, you sold all of your shares for $28.14 per share.What is your total dollar return on this investment?

The Zolo Co.just declared that it is increasing its annual dividend from $1.00 per share to $1.25 per share.If the stock price remains constant, then:

Capital market history shows us that the average return relationship from lowest to highest between securities is:

In estimating the future equity risk premium, it is important to include assumptions about:

The dollar value of the world stock market capitalization, from largest to smallest is:

One year ago, you purchased a stock at a price of $32 a share.Today, you sold the stock and realized a total return of 25%.Your capital gain was $6 a share.What was your dividend yield on this stock?

Estimates using the arithmetic average will probably tend to _ values over the long-term while estimates using the geometric average will probably tend to _ values over the short-term.

In predicting the expected future return of the market, one of the dangers is that:

One year ago, you purchased a stock at a price of $32.50.The stock pays quarterly dividends of $.40 per share.Today, the stock is worth $34.60 per share.What is the total amount of your dividend income to date from this investment?

A capital gain occurs when:

You purchased 200 shares of stock at a price of $36.72 per share.Over the last year, you have received total dividend income of $322.What is the dividend yield?

The variance of returns is computed by dividing the sum of the:

Which country has the lowest stock market risk premium?

Winslow, Inc.stock is currently selling for $40 a share.The stock has a dividend yield of 3.8%.How much dividend income will you receive per year if you purchase 500 shares of this stock?