1. Which one of the following categories of securities had the highest average return for the period 1926–2013?
A. Long-term government bonds
B. Small-company stocks
C. Long-term corporate bonds
D. Large-company stocks
2. A stock has a beta of 1.2 and an expected return of 17 percent. A risk-free asset currently earns 5.1 percent. The beta of a portfolio comprised of these two assets is 0.85. What percentage of the portfolio is invested in the stock?
A. 92 percent
B. 77 percent
C. 71 percent
D. 81 percent
3. _______ market efficiency suggests that at a minimum, the current price of the stock reflects the stock’s own past prices.
A. Weak form
B. Strong form
D. Loose form
4. Six months ago, you purchased 100 shares of stock in Global Trading at a price of $38.70 a share. The stock pays a quarterly dividend of $.15 a share. Today, you sold all of your shares for $40.10 per share. What’s the total amount of your dividend income on this investment?
5. Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?
A. Evenly distributed market
B. Blume’s market
C. Efficient capital market
D. Zero volatility market
6. Suppose that you purchased 300 shares of a stock at $36 per share, ignoring all commissions. Assume the stock paid a dividend of $2.15 per share for the year. The stock price rose to $41.05 per share and was then sold at that price. What was the dividends yield? (Round your answer to the nearest tenth of a percent.)
A. 5.2 percent
B. 6 percent
C. 5 percent
D. 6.5 percent
7. Aimee is the owner of a stock with annual returns of 27 percent, –32 percent, 11 percent, and 23 percent for the last four years, respectively. She thinks the stock may be able to achieve a return of 50 percent or more in a single year. What’s the probability that your friend is correct?
A. Greater than 1 percent but less than 2.5 percent
B. Greater than 16 percent
C. Greater than .5 percent but less than 1 percent
D. Greater than 2.5 percent but less than 16 percent
8. Eliminating unsystematic risk by holding a portfolio of different assets reflects
A. the elimination of systematic risk.
B. beta coefficiency.
C. the principle of diversification.
D. portfolio variance spreading.
9. West Wind Tours stock is currently selling for $48 a share. The stock has a dividend yield of 3.2 percent. How much dividend income will you receive per year if you purchase 200 shares of this stock?
10. Systematic risk is measured by the
B. arithmetic average.
D. geometric average.
11. The market risk premium—the concept that investors should be rewarded for taking on extra risk—is illustrated as the
A. slope of the SML.
B. y-access intersection of the SML.
C. x-access intersection of the SML.
D. peak of the SML.