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Chapter 12
Some Lessons from Capital Market History
Multiple Choice Questions
1.
Last year, T-bills returned 2 percent while your investment in large-
company stocks earned an average of 5 percent. Which one of the following
terms refers to the difference between these two rates of return?
2.
Which one of the following best defines the variance of an investment's
annual returns over a number of years?
3.
Standard deviation is a measure of which one of the following?
4.
Which one of the following is defined by its mean and its standard
deviation?
5.
The average compound return earned per year over a multi-year period is
called the _____ average return.
6.
The return earned in an average year over a multi-year period is called the
_____ average return.
7.
Assume that the market prices of the securities that trade in a particular
market fairly reflect the available information related to those securities.
Which one of the following terms best defines that market?
8.
Which one of the following statements best defines the efficient market
hypothesis?
9.
Stacy purchased a stock last year and sold it today for $3 a share more than
her purchase price. She received a total of $0.75 in dividends. Which one of
the following statements is correct in relation to this investment?
10.
Which one of the following correctly describes the dividend yield?
11.
Bayside Marina just announced it is decreasing its annual dividend from
$1.64 per share to $1.50 per share effective immediately. If the dividend
yield remains at its pre-announcement level, then you know the stock
price:
12.
Which one of the following statements related to capital gains is correct?
13.
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.
14.
The real rate of return on a stock is approximately equal to the nominal rate
of return:
15.
As long as the inflation rate is positive, the real rate of return on a security
will be ____ the nominal rate of return.
16.
Small-company stocks, as the term is used in the textbook, are best defined
as the:
17.
Which one of the following statements is a correct reflection of the U.S.
markets for the period 1926-2010?
18.
Which one of the following categories of securities had the highest average
return for the period 1926-2010?
19.
Which one of the following categories of securities had the lowest average
risk premium for the period 1926-2010?
20.
Which one of the following categories of securities has had the most volatile
returns over the period 1926-2010?
