Question 1

Suppose you have a total return of 8.0% on 500 shares of XYZ Company that you bought for $9,590 last year.XYZ paid four equal quarterly dividends during the year.What would be the quarterly dividend if the current stock price is $18.64 per share?

Accepted Answer

The total dividend received is 8% of $9,590, which is $767.20. Since there were four equal quarterly dividends, each quarterly dividend would be $767.20 / 4 = $191.80. To find the quarterly dividend per share, we divide this by the number of shares, which is 500: $191.80 / 500 = $0.52.

Question 2

Laura purchased a share of MVP Company for $26.43 one year ago.The stock paid a quarterly dividend of $0.50 during the year.What is the capital gain yield if the current stock price is $28.26?

Accepted Answer

First, we need to calculate the total dividends received over the year:
$0.50 per quarter x 4 quarters = $2.00
Next, we can calculate the current capital gain:
$28.26 - $26.43 = $1.83

Now, we can calculate the total return:
Dividend + Capital gain / Original stock price x 100
($2.00 + $1.83) / $26.43 x 100 = 13.4%

However, we only want the capital gain yield, so we subtract the dividend yield:
Capital gain / Original stock price x 100 - Dividend yield
($1.83 / $26.43 x 100) - ($2.00 / $26.43 x 100) = 6.92%

Therefore, the answer is B) 6.92%.

Question 3

A stock selling for $12.00 today and expected to pay a $1.50 dividend and have a capital gain of 5% in one year will increase in price to sell at:

Accepted Answer

The stock price will increase by 5% from $12.00, which is $12.00 * 1.05 = $12.60.

Question 4

Which of the following is a FALSE statement?

Accepted Answer

Paper losses are unrealized losses on securities that have not yet been sold. They are not accepted as losses until the securities are actually sold and the losses are realized.

Question 5

Which of the following is NOT a true statement?

Accepted Answer

Common shares can gain or lose due to inflation, depending on the company's ability to adjust prices and the demand for its products. Therefore, it is not always true that common shares should lose from inflation over the long run.

Question 6

You made an investment in your RRSP account of $3,000 in an ETF that pays quarterly dividends.The price of each unit the day you made the investment is $60.The following year you invested another $2,000 in your RRSP account at a price of $ 70 per unit.How much would you have in your account two years after your initial investment if you know that the annual income yield of the ETF is 5% and an ETF unit is trading at $75 today?

Accepted Answer

First, let's calculate the number of units purchased in each investment:
- Initial investment of $3,000 at $60 per unit: 50 units
- Second investment of $2,000 at $70 per unit: 28.57 units (rounded)

For the first year, the 5% annual income yield would result in quarterly dividends of:
- $60 x 0.05 / 4 = $0.75 per unit
- $0.75 x 50 units = $37.50 in total dividends for the first year

At the end of the first year, the total value of the account would be:
- $3,000 + $2,000 = $5,000 (principal)
- 50 units x $75 per unit = $3,750 (current value of initial investment)
- 28.57 units x $75 per unit = $2,142.75 (current value of second investment)
- $37.50 in total dividends received during the year

Total value at the end of the first year: $5,000 + $3,750 + $2,142.75 + $37.50 = $10,930.25

For the second year, we need to calculate the dividends received and the increase in value based on the increase in unit price:
- $75 - $60 = $15 increase per unit
- $15 / $60 = 0.25 = 25% increase in unit price
- 25% x 50 units = 12.5 units increased value for initial investment
- 25% x 28.57 units = 7.1435 units increased value for second investment
- $75 x 0.05 / 4 = $0.9375 per unit
- $0.9375 x 50 units = $46.875 in total dividends for the second year

Total value at the end of the second year: $10,930.25 + ($15 x 50) + ($15 x 28.57) + $46.875 = $12,937.86

Therefore, the best choice is B.

Question 7

The income yield and capital gain yield of a stock are 4.90 percent and 7.37 percent, respectively.The stock paid a quarterly dividend of $0.65 per share during the year.What amount was originally paid for the stock?

Accepted Answer

The answer of The income yield and capital gain yield...

Question 8

A year ago, you bought some shares of CIA Company, which pays equal quarterly dividends.The income yield and the capital gain yield are 4.38 percent and 9.5 percent, respectively.The current price of CIA is $18.What was the quarterly dividend that CIA paid during the year?

Accepted Answer

The income yield is the annual dividend divided by the current price of the stock. The capital gain yield is the annual change in the stock price divided by the current price of the stock. We can use these two yields to find the quarterly dividend.Income yield = Annual dividend / Current price4.38% = Annual dividend / $18Annual dividend = $0.79Capital gain yield = Annual change in stock price / Current price9.5% = (Current price - Purchase price) / $18Current price - Purchase price = $1.71Purchase price = Current price - Annual change in stock pricePurchase price = $18 - $1.71Purchase price = $16.29Quarterly dividend = Annual dividend / 4Quarterly dividend = $0.79 / 4Quarterly dividend = $0.1975The closest answer choice is $0.18, so the correct answer is A.

Question 9

Steve bought a share of Toronto Skates Inc.three years ago for $45.00.He was paid two annual dividends of $4.50 in the past two years.If the stock price today is $ 48.50, which of the following are the three year's income yield (IY), capital gain (CGY), and total return (TR).

Accepted Answer

To calculate the income yield (IY), we add up the two annual dividends ($4.50 + $4.50) and divide by the original purchase price ($45.00):

IY = (2 x $4.50) / $45.00 = 0.20 or 20.00%

To calculate the capital gain yield (CGY), we subtract the original purchase price from the current price and divide by the original purchase price:

CGY = ($48.50 - $45.00) / $45.00 = 0.0778 or 7.78%

To calculate the total return (TR), we add the income yield and the capital gain yield:

TR = IY + CGY = 0.20 + 0.0778 = 0.2778 or 27.78%

Therefore, the best choice is C.

Question 10

A share of Oedipus Construction Company was selling for $32.16 one year ago.The stock paid an annual dividend of $0.25 during the year.What is the capital gain yield if the current share price is $34.02?

Accepted Answer

The answer of A share of Oedipus Construction Company was...

Question 11

The capital gain yield of an equity security is 9.27%.The security paid a quarterly dividend of $0.55 per share during the year.What is the current price of the security if the total return is 13.76 percent?

Accepted Answer

First, let's calculate the dividend yield:
Dividend yield = (0.55 * 4) / Current price
We multiply the quarterly dividend by 4 to get the annual dividend.
Dividend yield = 2.2 / Current price

Next, we use the total return formula:
Total return = Dividend yield + Capital gain yield
13.76% = Dividend yield + 9.27%
Dividend yield = 4.49%

Now we can solve for the current price:
4.49% = 2.2 / Current price
Current price = 2.2 / 4.49% = $53.54

Therefore, the correct answer is D.

Question 12

Which of the following statements is TRUE?

Accepted Answer

B) is true because the geometric mean is less than the arithmetic mean when there is variability in the rates of return, reflecting the compounding effect over time. The difference between them increases with the volatility of the returns, not the investment horizon.

Question 13

A stock selling for $20.00 today and expected to have an income (dividend)yield of 3% and a capital gain yield of 5% in one year will increase in price to sell at:

Accepted Answer

The expected total return on the stock is the sum of the expected income (dividend) yield and the expected capital gain yield. In this case, the total expected return is 3% + 5% = 8%.

To calculate the expected price of the stock at the end of one year, we can use the following formula:

Expected Price = Current Price x (1 + Total Expected Return)

Plugging in the numbers:

Expected Price = $20.00 x (1 + 0.08) = $20.00 x 1.08 = $21.60

Therefore, the best choice is C, which is the closest option to the expected price of $21.60.

Question 14

A share of Oedipus Construction Company was selling for $32.16 one year ago.The stock paid an annual dividend of $0.25 during the year.What is the income yield (dividend yield)for shares of Oedipus Construction Company?

Accepted Answer

The dividend yield is calculated as the annual dividend per share divided by the stock price.

Annual dividend per share = $0.25 
Stock price one year ago = $32.16

Dividend yield = ($0.25 / $32.16) x 100% ≈ 0.777%

Therefore, the best choice is (C).

Question 15

Connie bought 400 shares of ABC Company for $9,288 one year ago.ABC paid a quarterly dividend of $0.40 per share throughout the year, and is currently trading at $24.85 per share.What are the income yield, capital gain yield, and total return for Connie's investment?

Accepted Answer

First, calculate the total dividends received: 
$0.40 per share x 400 shares x 4 quarters = $640

Next, calculate the current value of the investment: 
400 shares x $24.85 per share = $9,940

To calculate the income yield, divide the total dividends received by the initial investment: 
$640 / $9,288 = 0.0689 or 6.89%

To calculate the capital gain yield, subtract the initial investment from the current value, and divide by the initial investment: 
($9,940 - $9,288) / $9,288 = 0.0702 or 7.02%

To calculate the total return, add the income yield and capital gain yield: 
6.89% + 7.02% = 13.91%

Therefore, the best choice is C, with an income yield of 6.89%, capital gain yield of 7.02%, and total return of 13.91%.

Question 16

Use the following two statements to answer this question:
I.Risk is the possibility of incurring harm.
II.Ex post returns are expected returns while ex ante returns are future returns.

Accepted Answer

The answer of Use the following two statements to answer...

Question 17

Sandy paid $47.38 for one share of EMH Company one year ago.The stock paid four quarterly dividends of $1.00 each during the year, and is selling for $49.50 now.What are the income yield and capital gain yield for EMH over the past year?

Accepted Answer

The answer of Sandy paid $47.38 for one share of...

Question 18

Which of the following is NOT a correct statement about income yield?

Accepted Answer

Income yield is typically calculated by dividing the periodic cash receipts (such as interest or dividends) by the purchase price of the security, not the selling price.

Question 19

Steve bought a share of Toronto Skates Inc.three years ago for $45.00.He was paid two annual dividends of $4.50 in the past two years.If the stock price today is $ 48.50, what is the annual holding period return of the stock?

Accepted Answer

The answer of Steve bought a share of Toronto Skates...

Question 20

Melanie bought a share of MPT Company for $53.98 one year ago.The stock paid a quarterly dividend of $0.52 throughout the year.What is the income yield if the stock is selling for $57.10 today?

Accepted Answer

To calculate the income yield, we need to find the total dividend paid out in a year, which is 4 * $0.52 = $2.08. 
Then, we can find the yield by dividing the annual dividend by the current stock price and multiplying by 100%. So, ($2.08/$57.10) * 100% = 3.64%. Therefore, the best choice is C, 3.85%.

Quiz 8: Risk, Return, and Portfolio Theory