Chapter 10 Flashcards
(19 cards)
The ABC stock sold for $53 per share at the beginning of the year. During the year, the
company paid a dividend of $2.50 per share and then ended the year with a stock price of
$51.75. The change in the stock price is best described as…
Capital loss
For any given stock, the capital gains yield plus the dividend yield equals the…
Total return
On a particular risky investment, investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent. What is this excess return called?
Risk premium
The standard deviation measures the _____________ of a security’s returns over time
Volatility
For the period 1926-2020, which one of the following had the smallest risk premium?
U.S. Treasury bills
Over the period of 1926-2020, which one of the following is the most apt to have the largest
risk premium?
Small-company stocks
Over the period of 1926-2020, which one of the following tended to outperform other
securities over the long-term?
Small-company stocks
Over the period of 1926-2020, which one of the following investment classes had the
highest volatility of returns?
Small-company stocks
Over the period of 1926-2020, which one of the following categories has the widest
frequency distribution of returns?
Small-company stocks
Over the period of 1926-2020…
the risk premium on stocks exceeded the risk premium on bonds
Which one of the following statements is true regarding the period 1926-2020?
U.S. Treasury bills had a positive average real rate of return
Which one of the following is a correct ranking of securities based on their volatility during
the period from 1926 to 2020? Rank from highest to lowest volatility.
Small-company stocks, large-company stocks, long-term corporate bonds
Capital market history shows us that a reasonable ordering of the average return by asset
class, from lowest to highest, is…
U.S. Treasury bills, government bonds, large-company stocks, small-company stocks
The rate of return on which one of the following has a risk premium of 0%?
U.S. Treasury bills
One year ago, you purchased 600 shares of ABC stock. This morning you sold those shares
and realized a total return of 3.1 percent. Given this information, you know for sure the…
sum of the dividend yield and the capital gains yield is 3.1 percent
What is the risk-return trade-off?
Low risk means low expected returns, high risk means high expected returns
Which one of the following statements concerning the standard deviation is correct?
In general, the higher the standard deviation, the higher the expected return
Suppose that long-term corporate bonds had an average return of 6.4 percent and a standard deviation of 2.9 percent for a 90-year period. What range of returns would you
expect to see on these bonds 68 percent (~ mean value plus/minus ONE standard deviation) of the time, assuming returns following normal distribution?
3.5% to 9.3%
A bond has an average return of 11.2 percent and a standard deviation of 14.6 percent. What
range of returns would you expect to see 68 percent (~ mean value plus/minus ONE standard deviation) of the time on this security, assuming returns following normal distribution?
−3.4% to 25.8%
