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1. A market index is used to measure performance of a broad-based portfolio of stocks.
2. Stock market indexes are found in several countries outside the United States.
3. Long-term corporate bonds are the only portfolio of securities found to be riskier than
common stocks.
4. For investment horizons greater than 20 years, long-term corporate bonds traditionally
have outperformed common stocks.
5. The S&P 500 accounts for nearly 75% of the total market value of stocks traded in the
United States.
6. The expected return on an investment includes compensation for both the time value of
money and the risks assumed.
7. If one portfolio's variance exceeds that of another portfolio, its standard deviation will also
be greater than that of the other portfolio.
8. Historically speaking, the market risk premium in Italy has been higher than that of the
United States.
9. Market risk can be eliminated in a stock portfolio through diversification.
10. Macro risks are faced by all common stock investors.
11. The risk that remains in a stock portfolio after efforts to diversify is known as unique risk.
12. Cyclical stocks tend to perform well when other stocks are performing well also.
13. Average returns on high-risk assets are higher than those on low-risk assets.
14. The historical record fails to show that investors have received a risk premium for holding
risky assets.
15. Investors who bought shares of stock in March 2000 would most likely have seen the value
of their investment decline over the next two-and-a-half years.
16. Every additional stock added to a portfolio reduces the portfolio's level of risk by an equal
amount.
17. The expected return on an investment provides compensation to investors both for waiting
and for worrying.
18. All financial managers and economists believe that long-run historical returns are the best
available measure of future returns.
19. Specific risks are generally associated with a single firm or industry.
20. A share of stock currently sells for $60, pays an annual dividend of $4.00, and earned a
rate of return of 20% over the past year. What did this stock sell for one year ago?
21. Sue purchased a stock for $25 a share, held it for one year, received a $1.34 dividend,
and sold the stock for $26.45. What nominal rate of return did she earn?
22. What is the percentage return on a stock that was purchased for $48.40, paid a $1.67
dividend, and was then sold after one year for $46.20?
23. What was the percentage return on a non-dividend-paying stock that was purchased for
$40.00 and then sold after one year for $39.00?
24. An investor receives a 15% total return by purchasing a stock for $40 and selling it after
one year with a 5% capital gain. How much was received in dividend income during the year?
25. How is it possible for real rates of return to increase during times when the rate of
inflation increases?
26. What nominal return was received by an investor when inflation averaged 3.46% and the
real rate of return was 2.5%?
27. Real rates of return are typically less than nominal rates of return due to:
28. If a share of stock provided a 14.84% nominal rate of return over the previous year while
the real rate of return was 6.65%, then the inflation rate was:
29. The actual real rate of return on an investment will be positive as long as the:
30. What real rate of return is earned by a one-year investor in a bond that was purchased
for $1,000, has a coupon rate of 8%, and was sold for $960 when the inflation rate was 6%?
31. The Dow Jones Industrial Average is:
32. "Dow up 14. Story at 6:00." This means that:
33. Although several stock indexes are available to inform investors of market changes, the
Dow Jones Industrial Average:
34. Which one of the following statements seems most appropriate when the Dow Jones
Industrial Average increases by 2%?
35. Stock A has 10 million shares outstanding and stock B has 5 million shares outstanding.
Both stocks sell for $10 a share. What is their relative weighting if both stocks are represented in
the S&P 500?
36. Which one of these is considered to be the safest investment?
37. Although Standard and Poor's Composite Index contains a limited number of U.S. publicly
traded stocks, the Index represents:
38. The primary difference between U.S. Treasury bills and U.S. Treasury bonds is that the
bills:
39. Assume market interest rates have risen substantially in the 5 years since an investor
purchased Treasury bonds that were offering a 6% return over their 15-year life. If the investor
sells now he or she is likely to realize a total return that is:
40. A maturity premium is offered on long-term Treasury bonds due to:
41. The idea that investors in a common stock may expect a lower total return if they
purchase a stock with limited price volatility rather than one with high price volatility suggests
that:
42. Which one of the following guarantees is offered to common stock investors?
