Question 1

Which one of the following is a correct statement concerning risk premium?
A) The greater the volatility of returns, the greater the risk premium.
B) The lower the volatility of returns, the greater the risk premium.
C) The lower the average rate of return, the greater the risk premium.
D) The risk premium is not correlated to the average rate of return.

Accepted Answer

Risk premium is the amount of return an investor expects for taking on additional risk. It is calculated as the difference between the expected rate of return on a risky asset and the risk-free rate of return. The greater the volatility of returns, the greater the risk premium because investors need to be compensated for the extra risk they are taking on. The statement in option B is incorrect because lower volatility means lower risk, which would result in a lower risk premium. The statement in option C is also incorrect because a lower average rate of return does not necessarily mean a greater risk premium. The statement in option D is incorrect because the risk premium is indeed correlated to the average rate of return.

Question 2

On January 1,2013 Westman Fuji sold for $40 and on January 1,2014 Westman Fuji sold for $39.50.During 2013 Westman Fuji paid four quarterly dividends of $1.50. Fuji's dividend yield is:
A) 2.53%.
B) 3.75%.
C) 15.00%.
D) 15.19%.

Accepted Answer

C

Question 3

Kids Toy Co.has had total returns over the past five years of 0%,7%,-2%,10%,and 12%.What was the mean return on this stock and its variability in percent return?
A) 6.75%; 6.15%.
B) 5.40%; 6.15%.
C) 6.75%; 6.33%.
D) 5.40%; 5.50%.

Accepted Answer

The mean return is calculated by adding all the returns and dividing by the number of years, which is (0 + 7 - 2 + 10 + 12) / 5 = 27 / 5 = 5.4%. To calculate the variability (standard deviation), first, find the variance by calculating the squared differences from the mean, then average those, and finally take the square root. The calculations give a standard deviation of approximately 6.15%.

Question 4

Excelsior share are currently selling for $25.00 each.You bought 200 shares one year ago at $24 and received dividend payments of $1.50 per share.What was your percentage rate of return?
A) 10.42%
B) 4.17%
C) 6.25%
D) 110.42%
E) 104.67%

Accepted Answer

The total cost of the shares when bought was 200 shares * $24 = $4800. The total value after one year, including dividends, is (200 shares * $25) + (200 shares * $1.50) = $5000 + $300 = $5300. The profit is $5300 - $4800 = $500. The percentage rate of return is ($500 / $4800) * 100 = 10.42%.

Question 5

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 of...

Question 6

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 return?
A) $900.
B) $500.
C) $400.
D) $2,500.

Accepted Answer

Your total dollar return is the sum of the dividends received and the capital gain. The initial investment was 100 shares at $20 each, totaling $2,000. At the end of the year, the stock was worth $2,500, and you received $400 in dividends. The capital gain is $2,500 - $2,000 = $500. Therefore, the total dollar return is $500 (capital gain) + $400 (dividends) = $900.

Question 7

Excelsior shares are currently selling for $25.00 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?
A) 10.42%
B) 4.17%
C) 6.25%
D) 110.42%
E) 104.67%

Accepted Answer

The answer of Excelsior shares are currently selling for $25.00...

Question 8

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

If the annual dividend per share increases while the stock price remains constant, then the dividend yield must increase. The capital gains yield represents the change in the stock price, which is not affected by the increase in the dividend. Therefore, choices A, B, D, and E are incorrect.

Question 9

The return on your portfolio over the last 5 years were -5%,20%,0%,10% and 5%.What was the standard deviation of your return? What is your best guess as to next year's return?
A) 2.74%; 6.00%.
B) 5.31%; 5.65%.
C) 9.62%; 6.00%.
D) 9.62%; 15.00%.
E) 12.70%; 20.00%.

Accepted Answer

The answer of The return on your portfolio over the...

Question 10

The prices for IMB over the last 3 years are given below.Assuming no dividends were paid,what was the 3-year holding period return? 
A) 17.65%.
B) 5.11%.
C) 14.29%.
D) -8.57%.

Accepted Answer

The answer of The prices for IMB over the last...

Question 11

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 total dollar capital gain and total dollar return?
A) $400; $500.
B) $400; $900.
C) $500; $900.
D) $900; $2,500.

Accepted Answer

To calculate the total dollar capital gain, we subtract the initial investment from the final value of the investment:

Total capital gain = (Final value of investment) - (Initial investment) 
Total capital gain = ($2,500) - ($2,000) 
Total capital gain = $500

To calculate the total dollar return, we add the total capital gain to the total dividends received:

Total return = Total capital gain + Total dividends 
Total return = $500 + $400 
Total return = $900

Therefore, the correct answer is C.

Question 12

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 13

Kids Toy Co.has had total returns over the past five years of 0%,7%,-2%,10%,and 12%.What is the percentage change in wealth over the five years
A) 29%
B) 27%
C) 5.8%
D) 5.4%

Accepted Answer

To calculate the percentage change in wealth over the five years, we need to compound the returns. This means we multiply each year's growth factor (1 + return) together and then subtract 1 to find the overall growth percentage. The calculation is as follows: (1 + 0.00) * (1 + 0.07) * (1 - 0.02) * (1 + 0.10) * (1 + 0.12) = 1.29 - 1 = 0.29 or 29%.

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.

Accepted Answer

A capital gain occurs when the selling price of an asset is greater than its purchase price. Therefore, option B is correct. Option A is incorrect because it describes a capital loss. Options C and D are incorrect because they are not directly related to capital gains.

Question 15

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

Accepted Answer

The total return on a security includes both capital gains and dividends. Therefore, the capital gains yield plus the dividend yield is called the total return. Option D is the correct choice.

Question 16

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 percentage rate of return?
A) 20%
B) 25%
C) 45%
D) 125%
E) 145%

Accepted Answer

The initial investment was 100 shares at $20 each, totaling $2,000. The end value of the stock was $2,500, and dividends received were $400. The total gain is $2,500 (final value) + $400 (dividends) - $2,000 (initial investment) = $900. The percentage rate of return is ($900 / $2,000) * 100% = 45%.

Question 17

If the expected return on the market is 16%,then using the historical risk premium of 8.5%,the current risk-free rate is:
A) 4.5%.
B) 7.5%.
C) 10.0%.
D) 10.5%.
E) 12.5%.

Accepted Answer

The answer of If the expected return on the market...

Question 18

Capital gains are defined as:
A) the change in the firm's dividend payout over year.
B) assets sold at prices greater than their purchasing price.
C) assets sold at prices less than their purchasing price.
D) taxes collected by Federal but not by State governments.

Accepted Answer

Capital gains refer to assets that are sold at prices greater than their purchasing price, resulting in a profit for the investor. This profit is subject to capital gains tax. The other options are not related to the definition of capital gains.

Question 19

You just sold 200 shares of XYZ 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?
A) -$550
B) -$222
C) -$3
D) $550
E) $878

Accepted Answer

The capital gain (or loss) is calculated by subtracting the purchase price from the selling price, then adjusting for dividends received. Here, the calculation is (38.75 - 41.50) * 200 + (1.64 * 200) = -550 + 328 = -$222. However, the question specifically asks for the capital gain on the investment, not the overall profit or loss, which includes dividends. The capital loss, before dividends, is (41.50 - 38.75) * 200 = -$550.

Question 20

The expected return on a security in the market context is:
A) a negative function of execs security risk.
B) a positive function of the beta.
C) a negative function of the beta.
D) a positive function of the excess security risk.
E) independent of beta.

Accepted Answer

The expected return on a security in the market context is a positive function of beta. Beta is a measure of the systematic risk of a security, and securities with higher betas are expected to have higher returns in a well-diversified portfolio. Therefore, option B is the best choice.

Quiz 10: Risk and Return: Lessons From Market History

Which one of the following is a correct statement concerning risk premium?

On January 1,2013 Westman Fuji sold for $40 and on January 1,2014 Westman Fuji sold for $39.50.During 2013 Westman Fuji paid four quarterly dividends of $1.50. Fuji's dividend yield is:

Kids Toy Co.has had total returns over the past five years of 0%,7%,-2%,10%,and 12%.What was the mean return on this stock and its variability in percent return?

Excelsior share are currently selling for $25.00 each.You bought 200 shares one year ago at $24 and received dividend payments of $1.50 per share.What was your percentage rate of return?

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?

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 return?

Excelsior shares are currently selling for $25.00 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?

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:

The return on your portfolio over the last 5 years were -5%,20%,0%,10% and 5%.What was the standard deviation of your return? What is your best guess as to next year's return?

The prices for IMB over the last 3 years are given below.Assuming no dividends were paid,what was the 3-year holding period return?

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 total dollar capital gain and total dollar return?

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?

Kids Toy Co.has had total returns over the past five years of 0%,7%,-2%,10%,and 12%.What is the percentage change in wealth over the five years

A capital gain occurs when:

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

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 percentage rate of return?

If the expected return on the market is 16%,then using the historical risk premium of 8.5%,the current risk-free rate is:

Capital gains are defined as:

You just sold 200 shares of XYZ 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?

The expected return on a security in the market context is: