Question 1

The primary purpose of Blume's formula is to:

Accepted Answer

A)   compute an accurate historical rate of return.
B)   determine a stock's true current value.
C)   consider compounding when estimating a rate of return.
D)   determine the actual real rate of return.
E)   project future rates of return.F) All of the above
G) A) and E)

Question 2

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Accepted Answer

A)   1.68 percent
B)   1.72 percent
C)   1.83 percent
D)   1.13 percent
E)   1.21 percentF) A) and C)
G) A) and E) B

Question 3

Which one of the following is defined by its mean and its standard deviation?

Accepted Answer

A)   arithmetic nominal return
B)   geometric real return
C)   normal distribution
D)   variance
E)   risk premiumF) A) and C)
G) B) and E)

Question 4

The real rate of return on a stock is approximately equal to the nominal rate of return:

Accepted Answer

A)   multiplied by (1 + inflation rate) .
B)   plus the inflation rate.
C)   minus the inflation rate.
D)   divided by (1 + inflation rate) .
E)   divided by (1 - inflation rate) .F) C) and D)
G) A) and E)

Question 5

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

Accepted Answer

A)   U.S.Treasury bill returns never exceeded a 9 percent return in any one year during the period.
B)   U.S.Treasury bills provided a positive rate of return each and every year during the period.
C)   Inflation equaled or exceeded the return on U.S.Treasury bills every year during the period.
D)   Long-term government bonds outperformed U.S.Treasury bills every year during the period.
E)   National deflation occurred at least once every decade during the period.F) A) and B)
G) A) and C)

Question 6

Which of the following correspond to a wide frequency distribution?
I.relatively low risk
II.relatively low rate of return
III.relatively high standard deviation
IV.relatively large risk premium

Accepted Answer

A)   II only
B)   III only
C)   I and II only
D)   II and III only
E)   III and IV onlyF) B) and D)
G) A) and E)

Question 7

Which one of the following is most indicative of a totally efficient stock market?

Accepted Answer

A)   extraordinary returns earned on a routine basis
B)   positive net present values on stock investments over the long-term
C)   zero net present values for all stock investments
D)   arbitrage opportunities which develop on a routine basis
E)   realizing negative returns on a routine basisF) A) and B)
G) A) and C)

Question 8

Small-company stocks,as the term is used in the textbook,are best defined as the:

Accepted Answer

A)   500 newest corporations in the U.S.
B)   firms whose stock trades OTC.
C)   smallest twenty percent of the firms listed on the NYSE.
D)   smallest twenty-five percent of the firms listed on NASDAQ.
E)   firms whose stock is listed on NASDAQ.F) A) and B)
G) None of the above

Question 9

Calculate the standard deviation of the following rates of return:

Accepted Answer

A)   10.79 percent
B)   12.60 percent
C)   13.48 percent
D)   14.42 percent
E)   15.08 percentF) C) and D)
G) B) and E)

Question 10

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

Accepted Answer

A)   1.0 percent
B)   2.5 percent
C)   5.0 percent
D)   16 percent
E)   32 percentF) None of the above
G) B) and C)

Question 11

A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent.Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Accepted Answer

A)   0.1 percent
B)   0.5 percent
C)   1.0 percent
D)   2.5 percent
E)   5.0 percentF) All of the above
G) A) and B) B

Question 12

Over the past fifteen years,the common stock of The Flower Shoppe,Inc.has produced an arithmetic average return of 12.2 percent and a geometric average return of 11.5 percent.What is the projected return on this stock for the next five years according to Blume's formula?

Accepted Answer

A)   11.70 percent
B)   11.89 percent
C)   12.00 percent
D)   12.03 percent
E)   12.12 percentF) A) and B)
G) D) and E)

Question 13

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?

Accepted Answer

A)   0.02070
B)   0.01972
C)   0.01725
D)   0.01684
E)   0.02633F) D) and E)
G) A) and B)

Question 14

-Based on past 23 years,Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Accepted Answer

A)   8.70 percent
B)   8.92 percent
C)   9.13 percent
D)   9.38 percent
E)   10.24 percentF) B) and D)
G) B) and E)

Question 15

The average compound return earned per year over a multi-year period is called the _____ average return.

Accepted Answer

A)   arithmetic
B)   standard
C)   variant
D)   geometric
E)   realF) B) and D)
G) A) and E)

Question 16

Which one of the following earned the highest risk premium over the period 1926-2010?

Accepted Answer

A)   long-term corporate bonds
B)   U.S.Treasury bills
C)   small-company stocks
D)   large-company stocks
E)   long-term government bondsF) B) and E)
G) B) and D) C

Question 17

Which one of the following statements concerning U.S.Treasury bills is correct for the period 1926- 2010?

Accepted Answer

A)   The annual rate of return always exceeded the annual inflation rate.
B)   The average risk premium was 0.7 percent.
C)   The annual rate of return was always positive.
D)   The average excess return was 1.1 percent.
E)   The average real rate of return was zero.F) B) and D)
G) B) and E)

Question 18

Six months ago,you purchased 100 shares of stock in Global Trading at a price of $38.70 a share.The stock pays a quarterly dividend of $0.15 a share.Today,you sold all of your shares for $40.10 per share.What is the total amount of your dividend income on this investment?

Accepted Answer

A)   $15
B)   $30
C)   $45
D)   $50
E)   $60F) D) and E)
G) All of the above

Question 19

Which one of the following statements is correct concerning market efficiency?

Accepted Answer

A)   Real asset markets are more efficient than financial markets.
B)   If a market is efficient,arbitrage opportunities should be common.
C)   In an efficient market,some market participants will have an advantage over others.
D)   A firm will generally receive a fair price when it issues new shares of stock.
E)   New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock.F) A) and B)
G) C) and D)

Question 20

Which of the following statements is correct in relation to a stock investment?
I.The capital gains yield can be positive,negative,or zero.
II.The dividend yield can be positive,negative,or zero.
III.The total return can be positive,negative,or zero.
IV.Neither the dividend yield nor the total return can be negative.

Accepted Answer

A)   I only
B)   I and II only
C)   I and III only
D)   I and IV only
E)   IV onlyF) None of the above
G) B) and D)

Exam 12: Some Lessons From Capital Market History

The primary purpose of Blume's formula is to:

Correct Answer
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You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Correct Answer
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B

Which one of the following is defined by its mean and its standard deviation?

Correct Answer
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The real rate of return on a stock is approximately equal to the nominal rate of return:

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

Correct Answer
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Which of the following correspond to a wide frequency distribution? I.relatively low risk II.relatively low rate of return III.relatively high standard deviation IV.relatively large risk premium

Correct Answer
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Which one of the following is most indicative of a totally efficient stock market?

Correct Answer
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Small-company stocks,as the term is used in the textbook,are best defined as the:

Correct Answer
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Calculate the standard deviation of the following rates of return:

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

Correct Answer
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A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent.Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Correct Answer
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B

Over the past fifteen years,the common stock of The Flower Shoppe,Inc.has produced an arithmetic average return of 12.2 percent and a geometric average return of 11.5 percent.What is the projected return on this stock for the next five years according to Blume's formula?

Correct Answer
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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?

Correct Answer
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-Based on past 23 years,Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Correct Answer
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The average compound return earned per year over a multi-year period is called the _____ average return.

Correct Answer
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Which one of the following earned the highest risk premium over the period 1926-2010?

Correct Answer
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C

Which one of the following statements concerning U.S.Treasury bills is correct for the period 1926- 2010?

Correct Answer
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Six months ago,you purchased 100 shares of stock in Global Trading at a price of $38.70 a share.The stock pays a quarterly dividend of $0.15 a share.Today,you sold all of your shares for $40.10 per share.What is the total amount of your dividend income on this investment?

Correct Answer
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Which one of the following statements is correct concerning market efficiency?

Correct Answer
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Exam 12: Some Lessons From Capital Market History

The primary purpose of Blume's formula is to:

Correct AnswerverifiedShow Answer

You own 400 shares of Western Feed Mills stock valued at $51.20 per share.What is the dividend yield if your annual dividend income is $352?

Correct AnswerverifiedB

Which one of the following is defined by its mean and its standard deviation?

Correct AnswerverifiedShow Answer

The real rate of return on a stock is approximately equal to the nominal rate of return:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following correspond to a wide frequency distribution? I.relatively low risk II.relatively low rate of return III.relatively high standard deviation IV.relatively large risk premium

Correct AnswerverifiedShow Answer

Which one of the following is most indicative of a totally efficient stock market?

Correct AnswerverifiedShow Answer

Small-company stocks,as the term is used in the textbook,are best defined as the:

Correct AnswerverifiedShow Answer

Calculate the standard deviation of the following rates of return:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent.Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?

Correct AnswerverifiedB

Over the past fifteen years,the common stock of The Flower Shoppe,Inc.has produced an arithmetic average return of 12.2 percent and a geometric average return of 11.5 percent.What is the projected return on this stock for the next five years according to Blume's formula?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

-Based on past 23 years,Westerfield Industrial Supply's common stock has yielded an arithmetic average rate of return of 10.5 percent.The geometric average return for the same period was 8.57 percent.What is the estimated return on this stock for the next 4 years according to Blume's formula?

Correct AnswerverifiedShow Answer

The average compound return earned per year over a multi-year period is called the _____ average return.

Correct AnswerverifiedShow Answer

Which one of the following earned the highest risk premium over the period 1926-2010?

Correct AnswerverifiedC

Which one of the following statements concerning U.S.Treasury bills is correct for the period 1926- 2010?

Correct AnswerverifiedShow Answer

Six months ago,you purchased 100 shares of stock in Global Trading at a price of $38.70 a share.The stock pays a quarterly dividend of $0.15 a share.Today,you sold all of your shares for $40.10 per share.What is the total amount of your dividend income on this investment?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning market efficiency?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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B

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B

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C

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