Question 1

An investor purchases 1,000 shares of a company at a purchase price of $18.00 at the start of the year. During the year, the company paid out $0.75 of dividends per share. The investor then sells all the shares at a selling price of $19.50. Determine the investor's total percentage return.

Accepted Answer

The total return includes both capital gains and dividends. The capital gain per share is $19.50 - $18.00 = $1.50. The dividend per share is $0.75. The total gain per share is $1.50 + $0.75 = $2.25. The percentage return is ($2.25 / $18.00) * 100% = 12.50%.

Question 2

A stock produced total returns of 10.4%, -11.9%, - 21.7%, and 31.2% over the past four years, respectively. What is the average rate of return for this period of time?

Accepted Answer

The answer of A stock produced total returns of 10.4%,...

Question 3

Six months ago, you purchased a stock at a price of $31.88 a share. Today, you sold those shares for $37.51 a share. During the past six months, you have received dividends totaling $0.46 a share while inflation has averaged 3.3%. What is your approximate real rate of return on this investment?

Accepted Answer

The answer of Six months ago, you purchased a stock...

Question 4

Over the past five years, Redstone Enterprises produced returns of 31%, 38%, -41%, 8%, and 15%. The mean of these returns is _____% and the standard deviation is _____%.

Accepted Answer

The mean return is calculated as the average of the returns: (31 + 38 - 41 + 8 + 15) / 5 = 10.2%. The standard deviation is calculated using the formula for standard deviation of a sample, resulting in approximately 31.04%.

Question 5

Seven months ago, you purchased a stock at a price of $36.04 a share. Today, you sold those shares for $43.15 a share. During the past seven months, you have received dividends totaling $0.24 a share while inflation has averaged 3.6%. What is your approximate real rate of return on this investment?

Accepted Answer

The real rate of return is calculated by adjusting the nominal return for inflation. First, calculate the nominal return, which includes both the capital gain and dividends received. The capital gain per share is $43.15 - $36.04 = $7.11. Adding the dividends received gives a total return per share of $7.11 + $0.24 = $7.35. The return as a percentage of the initial price is ($7.35 / $36.04) * 100 = 20.4%. To adjust for inflation, use the formula for the real rate of return: [(1 + nominal rate) / (1 + inflation rate)] - 1. Plugging in the numbers: [(1 + 0.204) / (1 + 0.036)] - 1 ≈ 16.2%. The closest option to this calculated value is 16.8%.

Question 6

ABC stock pays a $1.80 annual dividend. The market price of the stock was $21.74, $19.83, $22.60, and $23.10 at the end of the past four years, respectively. Based on this information, what is the mean rate of return?

Accepted Answer

The mean rate of return is calculated by averaging the annual returns. The annual return for each year is calculated by adding the dividend to the price change and dividing by the initial price. The average of these returns gives approximately 10.91%.

Question 7

Given the following historical returns, what is the standard deviation? Year 1 = 20%; year 2 = -12%; year 3 = 16%; year 4 = 3%; year 5 = -15%.

Accepted Answer

The answer of Given the following historical returns, what is...

Question 8

You purchased a bond for $900 one year ago. Today, you receive your only interest payment for the year of $100. The bond can currently be sold for $975. What is your total percentage return on investment? Ignore tax effects.

Accepted Answer

The total return on investment combines the interest received and the capital gain. The interest received is $100, and the capital gain is $975 - $900 = $75. Therefore, the total return is $100 + $75 = $175. The percentage return on the initial investment of $900 is ($175 / $900) * 100% = 19.4%.

Question 9

Baker's Chocolate common stock had annual returns of 13.7%, 11.3%, 4.6%, and - 8.9% over the last four years, respectively. What is the standard deviation of these returns?

Accepted Answer

The standard deviation is a measure of the dispersion of a set of data. It is calculated by taking the square root of the variance. The variance is calculated by finding the average of the squared differences between each data point and the mean. In this case, the mean is 6.4%. The variance is 102.4%. The standard deviation is 10.1%.

Question 10

You purchased 200 shares of preferred stock on January 1, 2002 for $42.27 per share. The stock pays an annual dividend of $5 per share. On December 31, 2002 the market price is $43.88 per share. What is your percentage return on investment for the year?

Accepted Answer

The answer of You purchased 200 shares of preferred stock...

Question 11

You purchased a five-year 6% annual coupon bond one year ago for $990. You sold the bond today when the market rate of return is 4.5%. If the inflation rate for the past year was 2.0%, what nominal rate of return did you earn on this investment?

Accepted Answer

The answer of You purchased a five-year 6% annual coupon...

Question 12

Over the last three years you earned 5%, 7%, and 9%. What is the standard deviation of your returns?

Accepted Answer

The standard deviation is a measure of the dispersion of a set of data. It is calculated by taking the square root of the variance. The variance is calculated by finding the average of the squared differences between each data point and the mean. In this case, the mean is (5% + 7% + 9%) / 3 = 7%. The variance is [(5% - 7%)^2 + (7% - 7%)^2 + (9% - 7%)^2] / 3 = 4%. The standard deviation is the square root of 4%, which is 2%.

Question 13

Over the 1957-2005 period, the risk premium on long bonds has averaged ________ per year.

Accepted Answer

The risk premium on long bonds over the 1957-2005 period has averaged 2.25% per year, as this is a commonly cited figure in financial literature for that time frame.

Question 14

Nine months ago, you purchased 350 shares of Southland, Inc. stock at a price of $62.47 a share. The company pays quarterly dividends of $.85 a share. Today, you sold all of your shares for $67.82 a share. What is your total percentage return on this investment?

Accepted Answer

The answer of Nine months ago, you purchased 350 shares...

Question 15

Destiny Corporation has experienced returns of 9%, 18%, 27% and -15% returns over the past four years. Given this information, calculate the company's geometric average returns.

Accepted Answer

The geometric average return is calculated by multiplying the returns (expressed as a decimal plus one), taking the nth root (where n is the number of returns), and then subtracting one and converting back to a percentage. For Destiny Corporation, the calculation is as follows: [(1 + 0.09) * (1 + 0.18) * (1 + 0.27) * (1 - 0.15)]^(1/4) - 1 = 0.0855 or 8.55%.

Question 16

Over the 1957-2005 period, the standard deviation of returns for long bonds has averaged ___________ per year.

Accepted Answer

The answer of Over the 1957-2005 period, the standard deviation...

Question 17

Today, you sold 700 shares of RZX stock. Your total return on these shares is 16.2%. You purchased the shares one year ago at a price of $33.40 a share. You received a total of $770 in dividends over the course of the year. What is your capital gains yield on this investment?

Accepted Answer

The answer of Today, you sold 700 shares of RZX...

Question 18

One year ago, Stephen purchased 100 shares of K&L stock at a price of $18 a share. Today, he sold the stock and realized a total return of 20%. His capital gain was $3.60 a share. What is the current dividend yield on this stock?

Accepted Answer

The answer of One year ago, Stephen purchased 100 shares...

Question 19

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 20

Calculate the standard deviation of an investment with five year returns of 15%, 10%, 5%, (5%) and (10%).

Accepted Answer

The answer of Calculate the standard deviation of an investment...

Quiz 12: Lessons From Capital Market History