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Exam 12: Some Lessons From Capital Market History

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Question 41

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As long as the inflation rate is positive,the real rate of return on a security will be ____ the nominal rate of return.

A) greater than
B) equal to
C) less than
D) greater than or equal to
E) unrelated to

F) A) and B)
G) All of the above

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Question 42

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A stock had returns of 15 percent,8 percent,12 percent,-15 percent,and -4 percent for the past five years.Based on these returns,what is the approximate probability that this stock will return at least 20 percent in any one given year?

A) less than 0.5 percent
B) greater than 0.5 percent but less than 1.0 percent
C) greater than 1.0 percent but less than 2.5 percent
D) greater than 2.5 percent but less than 16 percent
E) greater than 16.0 percent

F) C) and E)
G) A) and B)

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Question 43

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If the variability of the returns on large-company stocks were to increase over the long-term,you would expect which of the following to occur as a result? I.decrease in the average rate of return II.increase in the risk premium III.increase in the 68 percent probability range of the frequency distribution of returns IV.decrease in the standard deviation

Which one of the following statements is a correct reflection of the U.S.markets for the period 1926-2010?

Define and explain the three forms of market efficiency.

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 2 percent,-12 percent,16 percent,22 percent,and 18 percent.What is the variance of these returns?

A stock had returns of 11 percent,-18 percent,-21 percent,20 percent,and 34 percent over the past five years.What is the standard deviation of these returns?

You are aware that your neighbor trades stocks based on confidential information he overhears at his workplace.This information is not available to the general public.This neighbor continually brags to you about the profits he earns on these trades.Given this,you would tend to argue that the financial markets are at best _____ form efficient.

Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately.If the dividend yield remains at its pre-announcement level,then you know the stock price:

What was the highest annual rate of inflation during the period 1926-2010?

What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?

Suppose a stock had an initial price of $80 per share,paid a dividend of $1.35 per share during the year,and had an ending share price of $87.What was the capital gains yield?

One year ago,you purchased 150 shares of a stock at a price of $54.18 a share.Today,you sold those shares for $40.25 a share.During the past year,you received total dividends of $182 while inflation averaged 4.2 percent.What is your approximate real rate of return on this investment?

What are the two primary lessons learned from capital market history? Use historical information to justify that these lessons are correct.

A stock has returns of 18 percent,15 percent,-21 percent,and 6 percent for the past four years.Based on this information,what is the 95 percent probability range of returns for any one given year?

Assume that you invest in a portfolio of large-company stocks.Further assume that the portfolio will earn a rate of return similar to the average return on large-company stocks for the period 1926-2010.What rate of return should you expect to earn?

The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2010.

Which two of the following are the most likely reasons why a stock price might not react at all on the day that new information related to the stock issuer is released? I.insiders knew the information prior to the announcement II.investors need time to digest the information prior to reacting III.the information has no bearing on the value of the firm IV.the information was anticipated

Which one of the following statements correctly applies to the period 1926-2010?

According to Jeremy Siegel,the real return on stocks over the long-term has averaged about: