2023年公司理财习题库Chap.doc

CHAPTER 12
Some Lessons from Capital Market History

I. DEFINITIONS

RISK PREMIUM
a 1. The excess return required from a risky asset over that required from a risk-free asset is called the:
a. risk premium.
b. geometric premium.
c. excess return.
d. average return.
e. variance.

VARIANCE
b 2. The average squared difference between the actual return and the average return is called the:
a. volatility return.
b. variance.
c. standard deviation.
d. risk premium.
e. excess return.

STANDARD DEVIATION
c 3. The standard deviation for a set of stock returns can be calculated as the:
a. positive square root of the average return.
b. average squared difference between the actual return and the average return.
c. positive square root of the variance.
d. average return divided by N minus one, where N is the number of returns.
e. variance squared.

NORMAL DISTRIBUTION
d 4. A symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the _____ distribution.
a. gamma
b. Poisson
c. bi-modal
d. normal
e. uniform

GEOMETRIC AVERAGE RETURN
d 5. The average compound return earned per year over a multi-year period is called the _____ average return.
a. arithmetic
b. standard
c. variant
d. geometric
e. real
ARITHMETIC AVERAGE RETURN
a 6. The return earned in an average year over a multi-year period is called the _____ average return.
a. arithmetic
b. standard
c. variant
d. geometric
e. real

EFFICIENT CAPITAL MARKET
e 7. An efficient capital market is one in which:
a. brokerage commissions are zero.
b. taxes are irrelevant.
c. securities always offer a positive rate of return to investors.
d. security prices are guaranteed by the U.S. Securities and Exchange Commission to be fair.
e. security prices reflect available information.

EFFICIENT MARKETS HYPOTHESIS
a 8. The notion that actual capital markets, such as the NYSE, are fairly priced is called the:
a. Efficient Markets Hypothesis (EMH).
b. Law of One Price.
c. Open Markets Theorem.
d. Laissez-Faire Axiom.
e. Monopoly Pricing Theorem.

STRONG FORM EFFICIENCY
b 9. The hypothesis that market prices reflect all available information of every kind is called _____ form efficiency.
a. open
b. strong
c. semi-strong
d. weak
e. stable

SEMI STRONG FORM EFFICIENCY
c 10. The hypothesis that market prices reflect all publicly-available information is called _____ form efficiency.
a. open
b. strong
c. semi-strong
d. weak
e. stable

WEAK FORM EFFICIENCY
d 11. The hypothesis that market prices reflect all historical information is called _____ form efficiency.
a. open
b. strong
c. semi-strong
d. weak
e. stable

II. CONCEPTS

TOTAL RETURN
d 12. The total percentage return on an equity investment is computed using the formula ______, where P1 is the purchase cost, P2 represents the sale proceeds, and d is the dividend income.
a. (P2 – P1) ¸ (P2 + d)
b. (P1 – P2) ¸ (P2 + d)
c. (P1 – P2 – d) ¸ P1
d. (P2 – P1 + d) ¸ P1
e. (P2 – P1 + d) ¸ P2

DIVIDEND YIELD
a 13. The dividend yield is equal to _____, where P1 is the purchase cost, P2 represents the sale proceeds, and d is the dividend income.
a. d ¸ P1
b. d ´ P1
c. d ¸ P2
d. d ´ P2
e. d ¸ (P1 + P2)

DIVIDEND YIELD
c 14. The Zolo Co. just declared that they are increasing their annual dividend from $1.00 per share to $1.25 per share. If the stock price remains constant, then:
a. the capital gains yield will decrease.
b. the capital gains yield will increase.
c. the dividend yield will increase.
d. the dividend yield will also remain constant.
e. neither the capital gains yield nor the dividend yield will change.

CAPITAL GAIN
b 15. The dollar amount of the capital gain on an investment is computed as _____, where P1 is the purchase cost, P2 represents the sale proceeds, and d is the dividend income.
a. P1 – P2
b. P2 – P1
c. P2 ¸ P1
d. P1 – P2 + d
e. P2 – P1 – d

TOTAL RETURN
e 16. The capital gains yield plus the dividend yield on a security is called the:
a. variance of returns.
b. geometric return.
c. average period return.
d. summation of returns.
e. total return.

REAL RETURN
c 17. The real rate of return on a stock is approximately equal to the nominal rate of return:
a. multiplied by (1 + inflation rate).
b. plus the inflation rate.
c. minus the inflation rate.
d. divided by (1 + inflation rate).
e. divided by (1- inflation rate).

REAL RETURN
c 18. As long as the inflation rate is positive, the real rate of return on a security investment
will be ____ the nominal rate of return.
a. greater than
b. equal to
c. less than
d. greater than or equal to
e. unrelated to

HISTORICAL RECORD
d 19. A portfolio of large company stocks would contain which one of the following types of securities?
a. stock of the firms which represent the smallest 20 percent of the companies listed on the NYSE
b. U.S. Treasury bills
c. long-term corporate bonds
d. stocks of firms included in the S&P 500 index
e. long-term government bonds

HISTORICAL RECORD
d 20. Based on the period of 1926 through 2023, _____ have tended to outperform other securities over the long-term.
a. U.S. Treasury bills
b. large company stocks
c. long-term corporate bonds
d. small company stocks
e. long-term government bonds

HISTORICAL RECORD
a 21. Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2023?
a. U.S. Treasury bills
b. long-term government bonds
c. small company stocks
d. large company stocks
e. long-term corporate bonds

HISTORICAL RECORD
d 22. On average, for the period 1926 through 2023:
a. the real rate of return on U.S. Treasury bills has been negative.
b. small company stocks have underperformed large company stocks.
c. long-term government bonds have produced higher returns than long-term corporate bonds.
d. the risk premium on long-term corporate bonds has exceeded the risk premium on long-term government bonds.
e. the risk premium on large company stocks has exceeded the risk premium on small company stocks.

HISTORICAL RECORD
e 23. Over the period of 1926 through 2023, the annual rate of return on _____ has been more volatile than the annual rate of return on_____:
a. large company stocks; small company stocks.
b. long-term government bonds; long-term corporate bonds.
c. U.S. Treasury bills; long-term government bonds.
d. long-term corporate bonds; small company stocks.
e. large company stocks; long-term corporate bonds.

HISTORICAL RECORD
d 24. During the period of 1926 through 2023 the annual rate of inflation:
a. was always positive.
b. was only negative during the 3 years of the Great Depression.
c. never exceeded 10 percent.
d. fluctuated significantly from one year to the next.
e. tended to be negative during the years of World War II.

HISTORICAL RECORD
e 25. Based on the period of 1926 through 2023 the annual rate of inflation ranged from _____ percent to _____ percent.
a. -5; 6
b. -5; 9
c. -7; 6
d. -7; 15
e. -10; 18

HISTORICAL RECORD
b 26. $1 invested in U.S. Treasury bills in 1926 would have increased in value to ____ by 2023.
a. $10
b. $17
c. $30
d. $43
e. $60

HISTORICAL RECORD
d 27. Which one of the following is a correct ranking of securities based on their volatility over the period of 1926 to 2023? Rank from highest to lowest.
a. large company stocks, U.S. Treasury bills, long-term government bonds
b. small company stocks, long-term corporate bonds, large company stocks
c. small company stocks, long-term government bonds, long-term corporate bonds
d. large company stocks, long-term corporate bonds, long-term government bonds
e. long-term government bonds, long-term corporate bonds, U.S. Treasury bills

HISTORICAL RECORD
d 28. $1 invested in small company stocks in 1926 would have increased in value to _____ by 2023.
a. $60
b. $2,284
c. $4,092
d. $10,953
e. $13,185

HISTORICAL RECORD
d 29. The highest rate of annual inflation between 1926 and 2023 was_____ percent.
a. 7
b. 10
c. 13
d. 18
e. 22

HISTORICAL RECORD
e 30. The annual return on long-term government bonds has ranged between _____ percent and _____ percent during the period 1926 to 2023.
a. -2; 8
b. -4; 6
c. -5; 10
d. -6; 29
e. -7; 44

HISTORICAL RECORD
e 31. Over the period of 1926 to 2023, small company stocks had an average return of _____ percent.
a. 8.8
b. 10.2
c. 12.4
d. 14.6
e. 17.5

HISTORICAL AVERAGE RETURNS
c 32. Over the period of 1926 to 2023, the average rate of inflation was _____ percent.
a. 2.0
b. 2.7
c. 3.1
d. 3.8
e. 4.3

HISTORICAL AVERAGE RETURNS
c 33. The average annual return on long-term corporate bonds for the period of 1926 to 2023 was _____ percent.
a. 3.8
b. 5.8
c. 6.2
d. 7.9
e. 8.4

AVERAGE RETURNS
b 34. The average annual return on small company stocks was about _____ percent greater than the average annual return on large-company stocks over the period of 1926 to 2023.
a. 3
b. 5
c. 7
d. 9
e. 11

RISK PREMIUM
a 35. The average risk premium on U.S. Treasury bills over the period of 1926 to 2023 was _____ percent.
a. 0.0
b. 1.6
c. 2.2
d. 3.1
e. 3.8

RISK PREMIUM
a 36. Which one of the following is a correct statement concerning risk premium?
a. The greater the volatility of returns, the greater the risk premium.
b. The lower the volatility of returns, the greater the risk premium.
c. The lower the average rate of return, the greater the risk premium.
d. The risk premium is not correlated to the average rate of return.
e. The risk premium is not affected by the volatility of returns.

RISK PREMIUM
c 37. The risk premium is computed by ______ the average return for the investment.
a. subtracting the inflation rate from
b. adding the inflation rate to
c. subtracting the average return on the U.S. Treasury bill from
d. adding the average return on the U.S. Treasury bill to
e. subtracting the average return on long-term government bonds from

RISK PREMIUM
c 38. The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:
a. geometric average return.
b. inflation premium.
c. risk premium.
d. time premium.
e. arithmetic average return.

RISK PREMIUM
b 39. To convince investors to accept greater volatility in the annual rate of return on an investment, you must:
a. decrease the risk premium.
b. increase the risk premium.
c. decrease the expected rate of return.
d. decrease the risk-free rate of return.
e. increase the risk-free rate of return.

FREQUENCY DISTRIBUTION
a 40. Which one of the following takes the shape of a bell curve?
a. frequency distribution
b. variance
c. risk premium graph
d. standard deviation
e. deviation of returns

VARIANCE
e 41. Which of the following statements are correct concerning the variance of the annual returns on an investment?
I. The larger the variance, the more the actual returns tend to differ from the average return.
II. The larger the variance, the larger the standard deviation.
III. The larger the variance, the greater the risk of the investment.
IV. The larger the variance, the higher the expected return.
a. I and III only
b. II, III, and IV only
c. I, III, and IV only
d. I, II, and III only
e. I, II, III, and IV

VARIANCE
a 42. The variance of returns is computed by dividing the sum of the:
a. squared deviations by the number of returns minus one.
b. average returns by the number of returns minus one.
c. average returns by the number of returns plus one.
d. squared deviations by the average rate of return.
e. squared deviations by the number of returns plus one.

STANDARD DEVIATION
b 43. Which of the following statements concerning the standard deviation are correct?
I. The greater the standard deviation, the lower the risk.
II. The standard deviation is a measure of volatility.
III. The higher the standard deviation, the less certain the rate of return in any one given year.
IV. The higher the standard deviation, the higher the expected return.
a. I and III only
b. II, III, and IV only
c. I, III, and IV only
d. I, II, and III only
e. I, II, III, and IV

STANDARD DEVIATION
a 44. The standard deviation on small company stocks:
I. is greater than the standard deviation on large company stocks.
II. is less than the standard deviation on large company stocks.
III. had an average value of about 33 percent for the period 1926 to 2023.
IV. had an average value of about 20 percent for the period 1926 to 2023.
a. I and III only
b. I and II only
c. II and III only
d. II and IV only
e. I and IV only

ARITHMETIC VS. GEOMETRIC AVERAGES
b 45. Estimates using the arithmetic average will probably tend to _____ values over the long-term while estimates using the geometric average will probably tend to _____ values over the short-term.
a. overestimate; overestimate
b. overestimate; underestimate
c. underestimate; overestimate
d. underestimate; underestimate
e. accurately; accurately

MARKET EFFICIENCY
d 46. In an efficient market, the price of a security will:
a. always rise immediately upon the release of new information with no further price adjustments related to that information.
b. react to new information over a two-day period after which time no further price adjustments related to that information will occur.
c. rise sharply when new information is first released and then decline to a new stable level by the following day.
d. react immediately to new information with no further price adjustments related to that information.
e. be slow to react for the first few hours after new information is released allowing time for that information to be reviewed and analyzed.

MARKET EFFICIENCY
c 47. If the financial markets are efficient, then investors should expect their investments in those markets to:
a. earn extraordinary returns on a routine basis.
b. generally have positive net present values.
c. generally have zero net present values.
d. produce arbitrage opportunities on a routine basis.
e. produce negative returns on a routine basis.

MARKET EFFICIENCY
d 48. Which one of the following statements is correct concerning market efficiency?
a. Real asset markets are more efficient than financial markets.
b. If a market is efficient, arbitrage opportunities should be common.
c. In an efficient market, some market participants will have an advantage over others.
d. A firm will generally receive a fair price when it sells shares of stock.
e. New information will gradually be reflected in a stock’s price to avoid any sudden change in the price