Chapter 6 - Investment Returns

Question 1

The ex-dividend date occurs _____ business day before the record date.

Answer 1

one

Question 2

Date on which the dividend is announced.

Answer 2

Declaration date

Question 3

Date on which the dividend is distributed.

Answer 3

Payment date

Question 4

Date on which a person must own the stock to receive dividend.

Answer 4

Record date

Question 5

A corporation has declared a cash dividend on June 1, payable on July 25 to stockholders of record on Thursday, July 12. When does the stock trade ex-dividend?

Answer 5

Wednesday, July 11.

Question 6

A corporation has declared a cash dividend on June 1, payable on July 25 to stockholders of record on Thursday, July 12. If securities are not delivered by July 12, what must accompany the delivery?

Answer 6

A due bill

Question 7

(True or False) A stock dividend changes the overall value of the portfolio.

Answer 7

False

Question 8

The _____ of shares is reduced after a stock dividend.

Answer 8

cost basis

Question 9

(True or False) A stock dividend is taxable in the year it is paid.

Answer 9

False

Question 10

(True or False) If a cash dividend remains the same, the current yield on the stock will increase after a stock dividend is paid.

Answer 10

True

Question 11

Current Yield =

Answer 11

Annual Dividend / Current Market Price

Question 12

A bond’s nominal yield is also referred to as:

Answer 12

coupon rate

Question 13

To calculate a bond’s current yield, an investor must use its _____ interest payment.

Answer 13

annual

Question 14

To calculate a bond’s current yield, the _____ of the bond is used, not the investor’s _____.

Answer 14

current market value; purchase price

Question 15

A bond’s yield-to-maturity is also referred to as its _____ or _____.

Answer 15

basis; yield

Question 16

If interest rates are increasing, bond yields are _____ and bond prices are _____.

Answer 16

increasing; decreasing

Question 17

When bonds are callable at par and selling at a discount, use:

Answer 17

yield-to-maturity

Question 18

When bonds are callable at par and selling at a premium, use:

Answer 18

yield-to-call

Question 19

When the investor receives some of the original investment back.

Answer 19

Return of capital

Question 20

(True or False) Cost basis is equal to the amount paid for a security less commissions.

Answer 20

False

Question 21

The sale of a security held for more than one year results in a _____ capital gain or loss.

Answer 21

long-term

Question 22

(True or False) The holding period of a security is measured from trade date to trade date.

Answer 22

True

Question 23

(True or False) Any amount of the original investment received by an investor is considered a return of capital.

Answer 23

True

Question 24

A security has a 6% rate if return, when the inflation rate is 1.5%, and T-bills are yielding 2%. What is the real rate of return?

Answer 24

4.5%

6% - 1.5% = 4.5%

Question 25

A security has a 6% rate if return, when the inflation rate is 1.5%, and T-bills are yielding 2%. What is risk-adjusted return?

Answer 25

4%

6% - 2% = 4%

Question 26

The largest index is the:

Answer 26

Wilshire Associates Equity Index

Question 27

The smallest index is the:

Answer 27

Dow Jones Industrial Average