公司理財-習習題庫-Chap012

PAGE33CHAPTER12SomeLessonsfromCapitalMarketHistoryI. DEFINITIONSRISKPREMIUMa 1. Theexcessreturnrequiredfromariskyassetoverthatrequiredfromarisk-freeassetiscalledthe: a. riskpremium. b. geometricpremium. c. excessreturn. d. averagereturn. e. variance.VARIANCEb 2. Theaveragesquareddifferencebetweentheactualreturnandtheaveragereturniscalledthe: a. volatilityreturn. b. variance. c. standarddeviation. d. riskpremium. e. excessreturn.STANDARDDEVIATIONc 3. Thestandarddeviationforasetofstockreturnscanbecalculatedasthe: a. positivesquarerootoftheaveragereturn. b. averagesquareddifferencebetweentheactualreturnandtheaveragereturn. c. positivesquarerootofthevariance. d. averagereturndividedbyNminusone,whereNisthenumberofreturns. e. variancesquared.NORMALDISTRIBUTIONd 4. Asymmetric,bell-shapedfrequencydistributionthatiscompletelydefinedbyitsmeanandstandarddeviationisthe_____distribution. a. gamma b. Poisson c. bi-modal d. normal e. uniformGEOMETRICAVERAGERETURNd 5. Theaveragecompoundreturnearnedperyearoveramulti-yearperiodiscalledthe_____averagereturn. a. arithmetic b. standard c. variant d. geometric e. real

ARITHMETICAVERAGERETURNa 6. Thereturnearnedinanaverageyearoveramulti-yearperiodiscalledthe_____averagereturn. a. arithmetic b. standard c. variant d. geometric e. realEFFICIENTCAPITALMARKETe 7. Anefficientcapitalmarketisoneinwhich: a. brokeragecommissionsarezero. b. taxesareirrelevant. c. securitiesalwaysofferapositiverateofreturntoinvestors. d. securitypricesareguaranteedbythe.SecuritiesandExchangeCommissiontobefair. e. securitypricesreflectavailableinformation.EFFICIENTMARKETSHYPOTHESISa 8. Thenotionthatactualcapitalmarkets,suchastheNYSE,arefairlypricediscalledthe: a. EfficientMarketsHypothesis(EMH). b. LawofOnePrice. c. OpenMarketsTheorem. d. Laissez-FaireAxiom. e. MonopolyPricingTheorem.STRONGFORMEFFICIENCYb 9. Thehypothesisthatmarketpricesreflectallavailableinformationofeverykindiscalled_____formefficiency. a. open b. strong c. semi-strong d. weak e. stableSEMISTRONGFORMEFFICIENCYc 10. Thehypothesisthatmarketpricesreflectallpublicly-availableinformationiscalled_____formefficiency. a. open b. strong c. semi-strong d. weak e. stable

WEAKFORMEFFICIENCYd 11. Thehypothesisthatmarketpricesreflectallhistoricalinformationiscalled_____formefficiency. a. open b. strong c. semi-strong d. weak e. stableII. CONCEPTSTOTALRETURNd 12. Thetotalpercentagereturnonanequityinvestmentiscomputedusingtheformula______,whereP1isthepurchasecost,P2representsthesaleproceeds,anddisthedividendincome. a. (P2–P1)(P2+d) b. (P1–P2)(P2+d) c. (P1–P2–d)P1 d. (P2–P1+d)P1 e. (P2–P1+d)P2DIVIDENDYIELDa 13. Thedividendyieldisequalto_____,whereP1isthepurchasecost,P2representsthesaleproceeds,anddisthedividendincome. a. dP1 b. dP1 c. dP2 d. dP2 e. d(P1+P2)DIVIDENDYIELDc 14. TheZoloCo.justdeclaredthattheyareincreasingtheirannualdividendfrom$pershareto$pershare.Ifthestockpriceremainsconstant,then: a. thecapitalgainsyieldwilldecrease. b. thecapitalgainsyieldwillincrease. c. thedividendyieldwillincrease. d. thedividendyieldwillalsoremainconstant. e. neitherthecapitalgainsyieldnorthedividendyieldwillchange.CAPITALGAINb 15. Thedollaramountofthecapitalgainonaninvestmentiscomputedas_____,whereP1isthepurchasecost,P2representsthesaleproceeds,anddisthedividendincome. a. P1–P2 b. P2–P1 c. P2P1 d. P1–P2+d e. P2–P1–d

TOTALRETURNe 16. Thecapitalgainsyieldplusthedividendyieldonasecurityiscalledthe: a. varianceofreturns. b. geometricreturn. c. averageperiodreturn. d. summationofreturns. e. totalreturn.REALRETURNc 17. Therealrateofreturnonastockisapproximatelyequaltothenominalrateofreturn: a. multipliedby(1+inflationrate). b. plustheinflationrate. c. minustheinflationrate. d. dividedby(1+inflationrate). e. dividedby(1-inflationrate).REALRETURNc 18. Aslongastheinflationrateispositive,therealrateofreturnonasecurityinvestment willbe____thenominalrateofreturn. a. greaterthan b. equalto c. lessthan d. greaterthanorequalto e. unrelatedtoHISTORICALRECORDd 19. Aportfoliooflargecompanystockswouldcontainwhichoneofthefollowingtypesofsecurities a. stockofthefirmswhichrepresentthesmallest20percentofthecompanieslistedontheNYSE b. .Treasurybills c. long-termcorporatebonds d. stocksoffirmsincludedintheS&P500index e. long-termgovernmentbondsHISTORICALRECORDd 20. Basedontheperiodof1926through2003,_____havetendedtooutperformothersecuritiesoverthelong-term. a. .Treasurybills b. largecompanystocks c. long-termcorporatebonds d. smallcompanystocks e. long-termgovernmentbonds

HISTORICALRECORDa 21. Whichoneofthefollowingtypesofsecuritieshastendedtoproducethelowestrealrateofreturnfortheperiod1926through2003 a. .Treasurybills b. long-termgovernmentbonds c. smallcompanystocks d. largecompanystocks e. long-termcorporatebondsHISTORICALRECORDd 22. Onaverage,fortheperiod1926through2003: a. therealrateofreturnon.Treasurybillshasbeennegative. b. smallcompanystockshaveunderperformedlargecompanystocks. c. long-termgovernmentbondshaveproducedhigherreturnsthanlong-termcorporatebonds. d. theriskpremiumonlong-termcorporatebondshasexceededtheriskpremiumonlong-termgovernmentbonds. e. theriskpremiumonlargecompanystockshasexceededtheriskpremiumonsmallcompanystocks.HISTORICALRECORDe 23. Overtheperiodof1926through2003,theannualrateofreturnon_____hasbeenmorevolatilethantheannualrateofreturnon_____: a. largecompanystocks;smallcompanystocks. b. long-termgovernmentbonds;long-termcorporatebonds. c. .Treasurybills;long-termgovernmentbonds. d. long-termcorporatebonds;smallcompanystocks. e. largecompanystocks;long-termcorporatebonds.HISTORICALRECORDd 24. Duringtheperiodof1926through2003theannualrateofinflation: a. wasalwayspositive. b. wasonlynegativeduringthe3yearsoftheGreatDepression. c. neverexceeded10percent. d. fluctuatedsignificantlyfromoneyeartothenext. e. tendedtobenegativeduringtheyearsofWorldWarII.HISTORICALRECORDe 25. Basedontheperiodof1926through2003theannualrateofinflationrangedfrom_____percentto_____percent. a. -5;6 b. -5;9 c. -7;6 d. -7;15 e. -10;18

HISTORICALRECORDb 26. $1investedin.Treasurybillsin1926wouldhaveincreasedinvalueto____by2003. a. $10 b. $17 c. $30 d. $43 e. $60HISTORICALRECORDd 27. Whichoneofthefollowingisacorrectrankingofsecuritiesbasedontheirvolatilityovertheperiodof1926to2003Rankfromhighesttolowest. a. largecompanystocks,.Treasurybills,long-termgovernmentbonds b. smallcompanystocks,long-termcorporatebonds,largecompanystocks c. smallcompanystocks,long-termgovernmentbonds,long-termcorporatebonds d. largecompanystocks,long-termcorporatebonds,long-termgovernmentbonds e. long-termgovernmentbonds,long-termcorporatebonds,.TreasurybillsHISTORICALRECORDd 28. $1investedinsmallcompanystocksin1926wouldhaveincreasedinvalueto_____by2003. a. $60 b. $2,284 c. $4,092 d. $10,953 e. $13,185HISTORICALRECORDd 29. Thehighestrateofannualinflationbetween1926and2003was_____percent. a. 7 b. 10 c. 13 d. 18 e. 22HISTORICALRECORDe 30. Theannualreturnonlong-termgovernmentbondshasrangedbetween_____percentand_____percentduringtheperiod1926to2003. a. -2;8 b. -4;6 c. -5;10 d. -6;29 e. -7;44

HISTORICALRECORDe 31. Overtheperiodof1926to2003,smallcompanystockshadanaveragereturnof_____percent. a. b. c. d. e. HISTORICALAVERAGERETURNSc 32. Overtheperiodof1926to2003,theaveragerateofinflationwas_____percent. a. b. c. d. e. HISTORICALAVERAGERETURNSc 33. Theaverageannualreturnonlong-termcorporatebondsfortheperiodof1926to2003was_____percent. a. b. c. d. e. AVERAGERETURNSb 34. Theaverageannualreturnonsmallcompanystockswasabout_____percentgreaterthantheaverageannualreturnonlarge-companystocksovertheperiodof1926to2003. a. 3 b. 5 c. 7 d. 9 e. 11RISKPREMIUMa 35. Theaverageriskpremiumon.Treasurybillsovertheperiodof1926to2003was_____percent. a. b. c. d. e.

RISKPREMIUMa 36. Whichoneofthefollowingisacorrectstatementconcerningriskpremium a. Thegreaterthevolatilityofreturns,thegreatertheriskpremium. b. Thelowerthevolatilityofreturns,thegreatertheriskpremium. c. Thelowertheaveragerateofreturn,thegreatertheriskpremium. d. Theriskpremiumisnotcorrelatedtotheaveragerateofreturn. e. Theriskpremiumisnotaffectedbythevolatilityofreturns.RISKPREMIUMc 37. Theriskpremiumiscomputedby______theaveragereturnfortheinvestment. a. subtractingtheinflationratefrom b. addingtheinflationrateto c. subtractingtheaveragereturnonthe.Treasurybillfrom d. addingtheaveragereturnonthe.Treasurybillto e. subtractingtheaveragereturnonlong-termgovernmentbondsfromRISKPREMIUMc 38. Theexcessreturnyouearnbymovingfromarelativelyrisk-freeinvestmenttoariskyinvestmentiscalledthe: a. geometricaveragereturn. b. inflationpremium. c. riskpremium. d. timepremium. e. arithmeticaveragereturn.RISKPREMIUMb 39. Toconvinceinvestorstoacceptgreatervolatilityintheannualrateofreturnonaninvestment,youmust: a. decreasetheriskpremium. b. increasetheriskpremium. c. decreasetheexpectedrateofreturn. d. decreasetherisk-freerateofreturn. e. increasetherisk-freerateofreturn.FREQUENCYDISTRIBUTIONa 40. Whichoneofthefollowingtakestheshapeofabellcurve a. frequencydistribution b. variance c. riskpremiumgraph d. standarddeviation e. deviationofreturns

VARIANCEe 41. Whichofthefollowingstatementsarecorrectconcerningthevarianceoftheannualreturnsonaninvestment I. Thelargerthevariance,themoretheactualreturnstendtodifferfromtheaveragereturn. II. Thelargerthevariance,thelargerthestandarddeviation. III. Thelargerthevariance,thegreatertheriskoftheinvestment. IV. Thelargerthevariance,thehighertheexpectedreturn. a. IandIIIonly b. II,III,andIVonly c. I,III,andIVonly d. I,II,andIIIonly e. I,II,III,andIVVARIANCEa 42. Thevarianceofreturnsiscomputedbydividingthesumofthe: a. squareddeviationsbythenumberofreturnsminusone. b. averagereturnsbythenumberofreturnsminusone. c. averagereturnsbythenumberofreturnsplusone. d. squareddeviationsbytheaveragerateofreturn. e. squareddeviationsbythenumberofreturnsplusone.STANDARDDEVIATIONb 43. Whichofthefollowingstatementsconcerningthestandarddeviationarecorrect I. Thegreaterthestandarddeviation,thelowertherisk. II. Thestandarddeviationisameasureofvolatility. III. Thehigherthestandarddeviation,thelesscertaintherateofreturninanyonegivenyear. IV. Thehigherthestandarddeviation,thehighertheexpectedreturn. a. IandIIIonly b. II,III,andIVonly c. I,III,andIVonly d. I,II,andIIIonly e. I,II,III,andIVSTANDARDDEVIATIONa 44. Thestandarddeviationonsmallcompanystocks: I. isgreaterthanthestandarddeviationonlargecompanystocks. II. islessthanthestandarddeviationonlargecompanystocks. III. hadanaveragevalueofabout33percentfortheperiod1926to2003. IV. hadanaveragevalueofabout20percentfortheperiod1926to2003. a. IandIIIonly b. IandIIonly c. IIandIIIonly d. IIandIVonly e. IandIVonly

ARITHMETICVS.GEOMETRICAVERAGESb 45. Estimatesusingthearithmeticaveragewillprobablytendto_____valuesoverthelong-termwhileestimatesusingthegeometricaveragewillprobablytendto_____valuesovertheshort-term. a. overestimate;overestimate b. overestimate;underestimate c. underestimate;overestimate d. underestimate;underestimate e. accurately;accuratelyMARKETEFFICIENCYd 46. Inanefficientmarket,thepriceofasecuritywill: a. alwaysriseimmediatelyuponthereleaseofnewinformationwithnofurtherpriceadjustmentsrelatedtothatinformation. b. reacttonewinformationoveratwo-dayperiodafterwhichtimenofurtherpriceadjustmentsrelatedtothatinformationwilloccur. c. risesharplywhennewinformationisfirstreleasedandthendeclinetoanewstablelevelbythefollowingday. d. reactimmediatelytonewinformationwithnofurtherpriceadjustmentsrelatedtothatinformation. e. beslowtoreactforthefirstfewhoursafternewinformationisreleasedallowingtimeforthatinformationtobereviewedandanalyzed.MARKETEFFICIENCYc 47. Ifthefinancialmarketsareefficient,theninvestorsshouldexpecttheirinvestmentsinthosemarketsto: a. earnextraordinaryreturnsonaroutinebasis. b. generallyhavepositivenetpresentvalues. c. generallyhavezeronetpresentvalues. d. producearbitrageopportunitiesonaroutinebasis. e. producenegativereturnsonaroutinebasis.MARKETEFFICIENCYd 48. Whichoneofthefollowingstatementsiscorrectconcerningmarketefficiency a. Realassetmarketsaremoreefficientthanfinancialmarkets. b. Ifamarketisefficient,arbitrageopportunitiesshouldbecommon. c. Inanefficientmarket,somemarketparticipantswillhaveanadvantageoverothers. d. Afirmwillgenerallyreceiveafairpricewhenitsellssharesofstock. e. Newinformationwillgraduallybereflectedinastock’spricetoavoidanysuddenchangeinthepriceofthestock. MARKETEFFICIENCYc 49. Financialmarketsfluctuatedailybecausethey: a. areinefficient. b. slowlyreacttonewinformation. c. arecontinuallyreactingtonewinformation. d. offertremendousarbitrageopportunities. e. onlyreflecthistoricalinformation.

MARKETEFFICIENCYd 50. Insidertradingdoesnotofferanyadvantagesifthefinancialmarketsare: a. weakformefficient. b. semiweak-formefficient. c. semistrong-formefficient. d. strong-formefficient. e. inefficient.MARKETEFFICIENCYe 51. Accordingtotheory,studyinghistoricalpricesinordertoidentifymispricedstockswillnotworkinmarketsthatare_____efficient. I. weak-form II. semistrong-form III. strong-form a. Ionly b. IIonly c. IandIIonly d. IIandIIIonly e. I,II,andIIIMARKETEFFICIENCYe 52. Whichofthefollowingtendtoreinforcetheargumentthatthefinancialmarketsareefficient I. Informationspreadsrapidlyintoday’sworld. II. Thereistremendouscompetitioninthefinancialmarkets. III. Marketpricescontinuallyfluctuate. IV. Marketpricesreactsuddenlytounexpectednewsannouncements. a. IandIIIonly b. IIandIVonly c. I,II,andIIIonly d. II,III,andIVonly e. I,II,III,andIVMARKETEFFICIENCYa 53. Ifyouexcelinanalyzingthefutureoutlookoffirms,youwouldpreferthatthefinancialmarketsbe____formefficientsothatyoucanhaveanadvantageinthemarketplace. a. weak b. semiweak c. semistrong d. strong e. perfect

MARKETEFFICIENCYc 54. YourbestfriendworksinthefinanceofficeoftheDeltaCorporation.YouareawarethatthisfriendtradesDeltastockbasedoninformationheoverhearsintheoffice.Youknowthatthisinformationisnotknowntothegeneralpublic.YourfriendcontinuallybragstoyouabouttheprofitsheearnstradingDeltastock.Basedonthisinformation,youwouldtendtoarguethatthefinancialmarketsareatbest_____formefficient. a. weak b. semiweak c. semistrong d. strong e. perfectMARKETEFFICIENCYc 55. TheU.S.SecuritiesandExchangeCommissionperiodicallychargesindividualsforinsidertradingandclaimsthoseindividualshavemadeunfairprofits.Basedonthisfact,youwouldtendtoarguethatthefinancialmarketsareatbest_____formefficient. a. weak b. semiweak c. semistrong d. strong e. perfectMARKETEFFICIENCYb 56. Individualsthatcontinuallymonitorthefinancialmarketsseekingmispricedsecurities: a. tendtomakesubstantialprofitsonadailybasis. b. tendtomakethemarketsmoreefficient. c. areneverabletofindasecuritythatistemporarilymispriced. d. arealwaysquitesuccessfulusingonlywell-knownpublicinformationastheirbasisofevaluation. e. arealwaysquitesuccessfulusingonlyhistoricalpriceinformationastheirbasisofevaluation.III. PROBLEMSDOLLARRETURNSb 57. Oneyearago,youpurchasedastockatapriceof$.Thestockpaysquarterlydividendsof$.40pershare.Today,thestockisworth$pershare.Whatisthetotalamountofyourdividendincometodatefromthisinvestment a. $.40 b. $ c. $ d. $ e. $

DOLLARRETURNSd 58. Sixmonthsago,youpurchased100sharesofstockinABCCo.atapriceof$ashare.ABCstockpaysaquarterlydividendof$.10ashare.Today,yousoldallofyoursharesfor$pershare.Whatisthetotalamountofyourcapitalgainsonthisinvestment a. $ b. $ c. $ d. $ e. $DOLLARRETURNSd 59. Ayearago,youpurchased300sharesofIXCTechnologies,Inc.stockatapriceof$pershare.Thestockpaysanannualdividendof$.10pershare.Today,yousoldallofyoursharesfor$pershare.Whatisyourtotaldollarreturnonthisinvestment a. $5,703 b. $5,733 c. $5,753 d. $5,763 e. $5,853DIVIDENDYIELDb 60. Youpurchased200sharesofstockatapriceof$pershare.Overthelastyear,youhavereceivedtotaldividendincomeof$322.Whatisthedividendyield a. percent b. percent c. percent d. percent e. percentDIVIDENDYIELDd 61. Winslow,Inc.stockiscurrentlysellingfor$40ashare.Thestockhasadividendyieldofpercent.Howmuchdividendincomewillyoureceiveperyearifyoupurchase500sharesofthisstock a. $152 b. $190 c. $329 d. $760 e. $1,053DIVIDENDYIELDc 62. Oneyearago,youpurchasedastockatapriceof$32ashare.Today,yousoldthestockandrealizedatotalreturnof25percent.Yourcapitalgainwas$6ashare.Whatwasyourdividendyieldonthisstock a. percent b. percent c. percent d. percent e. percent

CAPITALGAINa 63. Youjustsold200sharesofLangley,Inc.stockatapriceof$ashare.Lastyearyoupaid$asharetobuythisstock.Overthecourseoftheyear,youreceiveddividendstotaling$pershare.Whatisyourcapitalgainonthisinvestment a. -$550 b. -$222 c. -$3 d. $550 e. $878CAPITALGAINb 64. Youpurchased300sharesofDeltona,Inc.stockfor$ashare.Youhavereceivedatotalof$630individendsand$14,040inproceedsfromsellingtheshares.Whatisyourcapitalgainsyieldonthisstock a. percent b. percent c. percent d. percent e. percentCAPITALGAINd 65. Today,yousold200sharesofSLG,Inc.stock..Yourtotalreturnonthesesharesispercent.Youpurchasedthesharesoneyearagoatapriceof$ashare.Youhavereceivedatotalof$280individendsoverthecourseoftheyear.Whatisyourcapitalgainsyieldonthisinvestment a. percent b. percent c. percent d. percent e. percentTOTALRETURNd 66. Sixmonthsago,youpurchased1,200sharesofABCstockfor$ashare.Youhavereceiveddividendpaymentsequalto$.60ashare.Today,yousoldallofyoursharesfor$ashare.Whatisyourtotaldollarreturnonthisinvestment a. $720 b. $1,200 c. $1,440 d. $1,920 e. $3,840

TOTALRETURNc 67. Eightmonthsago,youpurchased400sharesofWinston,Inc.stockatapriceof$ ashare.Thecompanypaysquarterlydividendsof$.50ashare.Today,yousoldallof yoursharesfor$ashare.Whatisyourtotalpercentagereturnonthis investment a. percent b. percent c. percent d. percent e. percentREALRETURNb 68. Lastyear,youpurchasedastockatapriceof$ashare.Overthecourseofthe year,youreceived$individendsandinflationaveragedpercent.Today,you soldyoursharesfor$ashare.Whatisyourapproximaterealrateofreturnon thisinvestment a. percent b. percent c. percent d. percent e. percentREALRETURNe 69. Sevenmonthsago,youpurchasedastockatapriceof$ashare.Today,yousold thosesharesfor$ashare.Duringthepastsevenmonths,youhavereceived dividendstotaling$asharewhileinflationhasaveragedpercent.Whatisyour approximaterealrateofreturnonthisinvestment a. percent b. percent c. percent d. percent e. percentSTANDARDDEVIATIONd 70. Astockhadreturnsof8percent,-2percent,4percent,and16percentoverthepastfouryears.Whatisthestandarddeviationofthisstockforthepastfouryears a. percent b. percent c. percent d. percent e. percent

RETURNDISTRIBUTIONSa 71. Astockhasanexpectedrateofreturnofpercentandastandarddeviationofpercent.Whichoneofthefollowingbestdescribestheprobabilitythatthisstockwilllose11percentormoreinanyonegivenyear a. lessthanpercent b. lessthanpercent c. lessthanpercent d. lessthanpercent e. lessthan5percentRETURNDISTRIBUTIONSd 72. Astockhasreturnsof3percent,18percent,-24percent,and16percentforthepastfouryears.Basedonthisinformation,whatisthe95percentprobabilityrangeforanyonegivenyear a. topercent b. topercent c. topercent d. topercent e. topercentRETURNDISTRIBUTIONSc 73. Astockhadreturnsof8percent,14percent,and2percentforthepastthreeyears.Basedonthesereturns,whatistheprobabilitythatthisstockwillearnatleast20percentinanyonegivenyear a. percent b. percent c. percent d. percent e. percentRETURNDISTRIBUTIONSc 74. Astockhadreturnsof11percent,1percent,9percent,15percent,and-6percentforthepastfiveyears.Basedonthesereturns,whatistheapproximateprobabilitythatthisstockwillearnatleast23percentinanyonegivenyear a. percent b. percent c. percent d. percent e. percentRETURNDISTRIBUTIONSc 75. Astockhadreturnsof8percent,39percent,11percent,and-24percentforthepastfouryears.WhichoneofthefollowingbestdescribestheprobabilitythatthisstockwillNOTlosemorethan43percentinanyonegivenyear a. percent b. percent c. percent d. percent e. percentRETURNDISTRIBUTIONSb 76. Overthepastfiveyears,astockproducedreturnsof14percent,22percent,-16percent,2percent,and10percent.WhatistheprobabilitythataninvestorinthisstockwillNOTlosemorethan8percentnorearnmorethan21percentinanyonegivenyear a. 34percent b. 68percent c. 95percent d. 99percent e. 100percentARITHMETICAVERAGEb 77. Whatarethearithmeticandgeometricaveragereturnsforastockwithannualreturnsof4percent,9percent,-6percent,and18percent a. percent;percent b. percent;percent c. percent;percent d. percent;percent e. percent;percentARITHMETICVS.GEOMETRICAVERAGESc 78. Whatarethearithmeticandgeometricaveragereturnsforastockwithannualreturnsof21percent,8percent,-32percent,41percent,and5percent a. percent;percent b. percent;percent c. percent;percent d. percent;percent e. percent;percentGEOMETRICAVERAGEb 79. Astockhadreturnsof6percent,13percent,-11percent,and17percentoverthepastfouryears.Whatisthegeometricaveragereturnforthistimeperiod a. percent b. percent c. percent d. percent e. percent

GEOMETRICAVERAGEb 80. Astockhadthefollowingpricesanddividends.Whatisthegeometricaveragereturnonthisstock Year Price Dividend 1 $ 2 $$.23 3 $ $.24 4 $ $.25 a. percent b. percent c. percent d. percent e. percentIV. ESSAYSEFFICIENTMARKETS81. Definethethreeformsofmarketefficiency.Thestudentshouldpresentastraightforwarddiscussionofweak(allpastpricesareinthecurrentprice),semi-strong(allpublicinformationisinthecurrentprice),andstrongform(allinformationisinthecurrentprice)marketefficiency.HISTORICALRETURNS82. Whatsecuritieshaveofferedthehighestaverageannualreturnsoverthelastseveral decadesCanweconcludethatreturnandriskarerelatedinreallife Thepurposeofthisquestionistocheckstudentunderstandingofthecapitalmarkethistory discussionofthechapter,aswellastoreiteratetheconceptoftherisk-returntrade-off.The securitiescategoriesdiscussedinthechapterarelistedbelowindescendingorderof historicalreturns(andrisk): 1. smallcompanystocks 2. largecompanystocks 3. long-termcorporatebonds 4. long-termgovernmentbonds 5. .Treasurybills Bylearningthishierarchy,andgiventhattheyarefamiliarwiththeattributesofeach security,studentsshouldbeleftwithlittledoubtthatthemaxim“Thegreatertherisk,the greaterthereturn”isanaptdescriptionoffinancialmarkets.LESSONS83. WhatarethelessonslearnedfromcapitalmarkethistoryWhatevidenceistheretosuggest theselessonsarecorrect First,thereisarewardforbearingrisk,andsecond,thegreatertherisk,thegreaterthe reward.Asevidence,thestudentsshouldprovideabriefdiscussionofthehistoricalratesof returnandstandarddeviationofreturnsofthevariousassetclassesdiscussedinthetext.

EFFICIENTMARKETS84. Explainwhyitisthatinanefficientmarket,investmentshaveanexpectedNPVofzero. Inanefficientmarket,pricesare“fair”sothatthecostofaninvestmentisneithertoohigh nortoolow.Thus,onaverage,investmentsinthatmarketwillyieldazeroNPV.Investors getexactlywhattheypayforwhentheybuyasecurityinanefficientmarketandfirmsget exactlywhattheirstocksandbondsareworthwhentheysellthem.EFFICIENTMARKETS85. Doyouthinkthelessonsfromcapitalmarkethistorywillholdforeachyearinthefuture Thatis,asanexample,ifyoubuysmallstockswillyourinvestmentalwaysoutperform .Treasurybonds Thestudentshouldrealizethatweareworkingwithaverages,sotheyshouldnotexpect riskierassetstoalwaysoutperformlessriskyassets.Thestudentshouldexplainsomewhere intheiranswerthatthisgetstotheheartofwhatriskis.Thatis,thereasonyouexpectto earnahigherreturnoverthelonghaulisthatyourvariabilityinpricefromyeartoyear