Question 1

On average,for the period 1926 to 2015
A)U)S.Treasury bills had a negative risk premium.
B)small-company stocks underperformed large-company stocks.
C)large-company stocks had a higher risk premium than long-term corporate bonds.
D)intermediate-term government bonds produced higher returns than long-term government bonds.
E)large-company stocks had a higher risk premium than small-company stocks.

Accepted Answer

According to historical data, large-company stocks had a higher risk premium than long-term corporate bonds for the period 1926 to 2015.

Question 2

The histograms of the returns on large-company and small-company stocks for the period 1926 to 2015 show that
A)large-company stocks never lost more than 20 percent in any one year.
B)1945 was the best-performing year for both large-company and small-company stocks.
C)small-company stocks most commonly return 30 to 40 percent.
D)small-company stocks are more volatile than large-company stocks.
E)large-company stocks are riskier than small-company stocks.

Accepted Answer

The histograms show that small-company stocks have a wider range of returns, indicating that they are more volatile than large-company stocks. Therefore, option D is the correct choice. The other options given are either incorrect or not supported by the information provided.

Question 3

Over the long-term,which one of the following is a correct statement concerning risk premium?
A)The lower the volatility of returns,the greater the risk premium.
B)Stocks tend to have a higher risk premium than bonds.
C)The lower the rate of return,the greater the risk premium.
D)The risk premium does not affect the rate of return.
E)The risk premium varies by the same percentage rate as the inflation rate.

Accepted Answer

Stocks tend to have higher risk premiums than bonds because they are generally more volatile and therefore carry a greater risk of loss. While the specific risk premium for a stock or bond may be influenced by a variety of factors, in general, stocks will have a higher risk premium than bonds. Choice A is incorrect because higher volatility generally means a higher risk premium. Choice C is also incorrect because a higher rate of return generally leads to a lower risk premium. Choice D is incorrect because the risk premium is a component of the overall rate of return. Choice E is also incorrect because the risk premium is not necessarily tied to the inflation rate.

Question 4

For the period 1926 to 2015,the mean return on large-company stocks is
A)8)7 percent.
B)11.9 percent.
C)13.2 percent.
D)9)6 percent.
E)14.1 percent.

Accepted Answer

According to historical data, the mean return on large-company stocks from 1926 to 2015 is 11.9 percent. This data is often used as a benchmark for comparing the performance of different investments.

Question 5

Based on the period 1926 to 2015,which category of securities has outperformed all of the other categories?
A)Long-term corporate bonds
B)U)S.Treasury bills
C)Small-company stocks
D)Large-company stocks
E)Long-term government bonds

Accepted Answer

Small-company stocks have historically provided higher returns compared to other categories of securities over the long term, despite their higher volatility and risk. This is attributed to the growth potential of small companies.

Question 6

What conclusion should you draw from the performance of stocks and bonds over the period 1926 to 2015?
A)Bonds have greater volatility than stocks.
B)Stock returns have a lower standard deviation than bond returns.
C)In any year,stocks will outperform bonds.
D)Stock returns have a smaller risk premium than bond returns.
E)Stocks are riskier than bonds.

Accepted Answer

Stocks are generally considered riskier than bonds due to their higher volatility and the greater uncertainty in their returns over time. This is reflected in the historical performance of stocks and bonds from 1926 to 2015, where stocks, despite offering higher potential returns, have shown greater fluctuations in their value compared to bonds.

Question 7

Assume stocks A and B have had identical stock prices every day for the past 3 years.Stock A pays a dividend but Stock B does not.Which one of these statements applies to these stocks for the last 3 years?
A)Their annual total rates of return are equal.
B)Stock A's total return has been higher than Stock B's every year.
C)Stock B's capital gain has exceeded Stock A's every year.
D)Stock A's total return had to be positive every year.
E)Stock B's holding period return exceeded that of Stock A.

Accepted Answer

Stock A's total return includes both the capital gains (which are identical for both stocks since their stock prices have moved identically) and the dividends paid. Since Stock B does not pay a dividend, its total return would only come from capital gains, making Stock A's total return higher.

Question 8

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

Accepted Answer

The risk premium is the additional return an investor demands for taking on riskier investments. Therefore, to calculate the risk premium, we need to subtract the average return on U.S. Treasury bills (which are considered risk-free investments) from the average rate of return for the investment in question.

Question 9

Which one of these statements is correct?
A)Treasury bills outperformed inflation every year during the period 1926-2015.
B)Small-company stocks outperformed large-company stocks every year during the period 1926-2015.
C)On an annual basis,small-company stocks had more consistent rates of return than did large-company stocks for the period 1926-2015.
D)The inflation rate has been positive every year during the period 1926-2015.
E)During the 1930s (Great Depression),long-term government bonds produced a relatively stable rate of return relative to large-company stocks.

Accepted Answer

During the 1930s, the Great Depression era, long-term government bonds indeed offered a relatively stable rate of return compared to the more volatile large-company stocks, which were significantly impacted by the economic downturn.

Question 10

The histogram of the returns on large-company stocks for the period 1926 to 2015 shows that the largest number of years had annual returns of
A)0 to 10 percent.
B)10 to 20 percent.
C)20 to 30 percent.
D)30 to 40 percent.
E)-10 to 0 percent.

Accepted Answer

According to the histogram, the peak occurs in the 10 to 20 percent range, which means that the largest number of years had annual returns of 10 to 20 percent.

Question 11

The capital gains yield plus the dividend yield on a security is called the
A)geometric return.
B)total return.
C)average period return.
D)variance of returns.
E)current yield.

Accepted Answer

The total return on a security is the sum of the capital gains yield and the dividend yield. Therefore, option B, total return, is the correct answer. Option A, geometric return, refers to the average annual return, which takes into account compounding. Option C, average period return, is a vague term and does not refer to a specific concept. Option D, variance of returns, measures the volatility of returns and is not related to the question. Option E, current yield, only refers to the dividend yield and not the capital gains yield.

Question 12

Winter's just declared an increase in its annual dividend from $.82 a share to $.85 a share.If the stock price should remain constant,then
A)the capital gains yield would decrease.
B)the capital gains yield would increase.
C)the dividend yield would remain constant.
D)the dividend yield would increase.
E)neither the capital gains yield nor the dividend yield would change.

Accepted Answer

If the dividend per share increases while the stock price remains the same, then the dividend yield (dividend per share/stock price) will increase. Therefore, the best choice is D. The capital gains yield (change in stock price/original stock price) will remain the same since the stock price is constant.

Question 13

Which one of these statements correctly reflects historical history for the period 1926-2015?
A)Large-company stocks have never returned more than 40 percent in a single year.
B)There is a direct relationship between the annual returns on large-company stocks and long-term government bonds.
C)U)S.Treasury bills have had a positive rate of return every single year.
D)The return on U.S.Treasury bills has exceeded the rate of inflation every single year.
E)The rate of inflation as measured by the consumer price index has been positive every single year.

Accepted Answer

The statement that US Treasury bills have had a positive rate of return every single year is historically accurate for the period 1926-2015. This is due to the fact that US Treasury bills are considered to be one of the safest investments and are backed by the US government. The other statements are not accurate. Large-company stocks have returned more than 40 percent in some years, there is no clear relationship between the annual returns on large-company stocks and long-term government bonds, the return on US Treasury bills has not always exceeded the rate of inflation, and the rate of inflation as measured by the consumer price index has been negative in some years.

Question 14

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the
A)geometric average return.
B)inflation premium.
C)risk premium.
D)time premium.
E)arithmetic average return.

Accepted Answer

The excess return earned by taking on additional risk is called the risk premium. The other options are not directly related to the concept of additional return earned by taking on more risk.

Question 15

During the period 2000 to 2015,which one of the following years had the lowest rate of return for the S&P 500 Index?
A)2002
B)2008
C)2001
D)2009
E)2010

Accepted Answer

The year 2008 had the lowest rate of return for the S&P 500 Index due to the financial crisis and recession that began that year. The index declined by approximately 37% in 2008.

Question 16

Assume today is December 31,2015.Approximately how long has it been since the annual rate of inflation as measured by the Consumer Price Index has been negative?
A)Less than 40 years
B)Between 40 and 50 years
C)Between 50 and 60 years
D)Between 60 and 70 years
E)More than 70 years

Accepted Answer

The answer of Assume today is December 31,2015.Approximately how long...

Question 17

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 to 2015?
A)Long-term corporate bonds
B)Long-term government bonds
C)Small-company stocks
D)Large-company stocks
E)U)S.Treasury bills

Accepted Answer

U.S. Treasury bills have historically offered the lowest real rate of return among the options listed. This is because they are considered to be among the safest investments, backed by the U.S. government, and thus offer lower returns compared to riskier assets like stocks and corporate bonds.

Question 18

For our historical comparison purposes,how are large-company stocks defined?
A)Stocks of the lowest 20 percent of the firms listed on the NYSE based on market capitalization
B)Stocks with average annual returns that exceed the average annual return of the U.S.Treasury bill
C)Any firm that has been listed on the NYSE for 40 years or more
D)Stocks of firms included in the S&P 500 composite index
E)Stocks of firms that employ over 5,000 employees

Accepted Answer

Large-company stocks are defined as stocks of firms included in the S&P 500 composite index. This index is made up of 500 leading publicly traded companies in the United States, based on market capitalization. Therefore, D is the correct answer.

Question 19

Which one of the following values cannot be negative?
A)Capital gain
B)Total dollar return
C)Holding period return
D)Dividend yield
E)Total return

Accepted Answer

Dividend yield is calculated as a ratio of the dividend per share divided by the stock price, so it cannot be negative. The other choices (capital gain, total dollar return, holding period return, and total return) can have negative values depending on the performance of the investment.

Question 20

Which one of these statements correctly reflects historical history for the period 1926-2015?
A)U)S.Treasury bills had a negative rate of return during the Great Depression.
B)The rate of return in any given year is a good estimate of the rate of return for the following year.
C)For large-company stocks,both the worst and best annual rate of return occurred during the period 1930-35.
D)The annual rate of return on U.S.Treasury bills never exceeded 8 percent.
E)The maximum annual rate of return on large-company stocks was 33 percent.

Accepted Answer

According to historical data, for large-company stocks, both the worst (-43.8%) and the best (54.2%) annual rate of return occurred during the period 1930-35. This is reflected in statement C. None of the other statements are accurate to historical history.

Quiz 10: Risk Amcq Return: Lessons From Market History

On average,for the period 1926 to 2015

The histograms of the returns on large-company and small-company stocks for the period 1926 to 2015 show that

Over the long-term,which one of the following is a correct statement concerning risk premium?

For the period 1926 to 2015,the mean return on large-company stocks is

Based on the period 1926 to 2015,which category of securities has outperformed all of the other categories?

What conclusion should you draw from the performance of stocks and bonds over the period 1926 to 2015?

Assume stocks A and B have had identical stock prices every day for the past 3 years.Stock A pays a dividend but Stock B does not.Which one of these statements applies to these stocks for the last 3 years?

The risk premium is computed by ________ the average rate of return for an investment.

Which one of these statements is correct?

The histogram of the returns on large-company stocks for the period 1926 to 2015 shows that the largest number of years had annual returns of

The capital gains yield plus the dividend yield on a security is called the

Winter's just declared an increase in its annual dividend from $.82 a share to $.85 a share.If the stock price should remain constant,then

Which one of these statements correctly reflects historical history for the period 1926-2015?

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the

During the period 2000 to 2015,which one of the following years had the lowest rate of return for the S&P 500 Index?

Assume today is December 31,2015.Approximately how long has it been since the annual rate of inflation as measured by the Consumer Price Index has been negative?

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 to 2015?

For our historical comparison purposes,how are large-company stocks defined?

Which one of the following values cannot be negative?

Which one of these statements correctly reflects historical history for the period 1926-2015?