Finance 101 Final

1. The total dollar return on a share of stock is defined as the: 
A.  change in the price of the stock over a period of time.
B.  capital gain or loss plus any dividend income.
C.  dividend income divided by the beginning price per share.
D.  annual dividend income received.
E.  change in the stock price divided by the original stock price

2. The dividend yield is defined as the annual dividend expressed as a percentage of the: 
A.  ending stock price.
B.  total annual return.
C.  average stock price.
D.  capital gain.
E.  initial stock price.

3. The capital gains yield is equal to: 
A. (Pt - Pt + 1 + Dt + 1) / Pt + 1.
B. (Pt + 1 - Pt + Dt) / Pt.
C. Dt + 1 / Pt.
D. (Pt + 1 - Pt) / Pt.
E. (Pt + 1 - Pt) / Pt + 1.

4. When the total return on an investment is expressed on a per-year basis it is called the: 
A.  dividend yield.
B.  effective annual return.
C.  capital gains yield.
D.  initial return.
E.  holding period return.

5. The risk-free rate is: 
A.  defined as the increase in the value of a share of stock over time.
B.  the rate of return earned on an investment in a firm that you personally own.
C.  another term for the dividend yield.
D.  defined as the total of the capital gains yield plus the dividend yield.
E.  the rate of return on a riskless investment.

6. The rate of return earned on a U.S. Treasury bill is referred to as the: 
A.  expected rate of return.
B.  deflated rate of return.
C.  risk-free rate.
D.  market rate of return.
E.  risk premium.

7. The risk premium is defined as the rate of return on: 
A.  a risky asset minus the inflation rate.
B.  a risky asset minus the risk-free rate.
C.  the overall market.
D.  a U.S. Treasury bill.
E.  a riskless investment..

8. The additional return earned for accepting risk is called the: 
A.  risk premium.
B.  real return.
C.  inflated return.
D.  capital gains yield.
E.  riskless rate.

9. The standard deviation is a measure of: 
A.  capital gains.
B.  total return.
C.  changes in dividend yields.
D.  volatility.
E.  changes in the capital gains rate.

10. A frequency distribution, which is completely defined by its average and standard deviation, is referred to as a(n): 
A.  expected rate of return.
B.  variance distribution.
C.  average arithmetic return.
D.  normal distribution.
E.  average geometric return.

11. The arithmetic average return is the: 
A.  compound total return for a period of years, t, divided by t.
B.  average squared return earned in a single year.
C.  average compound return earned per year over a multiyear period.
D.  return earned in an average year over a multiyear period.
E.  summation of the returns for a number of years, t, divided by (t - 1).

12. The average compound return earned per year over a multiyear period is called the: 
A.  total return.
B.  arithmetic average return.
C.  variance.
D.  average capital gains yield.
E.  geometric average return.

13. Which one of the following statements is correct concerning the dividend yield and the total return? 
A.  The total return can be negative but the dividend yield cannot be negative.
B.  The total return must be greater than the dividend yield.
C.  The dividend yield can be zero while the total return must be a positive value.
D.  The total return plus the capital gains yield is equal to the dividend yield.
E.  The dividend yield exceeds the total return when a stock increases in value.

14. An annualized return: 
A.  is computed as (1 + holding period percentage return)m, where m is the number of months in the holding period.
B.  is less than a holding period return when the holding period is less than one year.
C.  is computed as (1 + holding period percentage return)m, where m is the number of holding periods in a year.
D.  is expressed as the capital gains yield that would have been realized if an investment had been held for a twelve-month period.
E.  is expressed as the summation of the capital gains yield and the dividend yield on an investment.

15. Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it. What is the value of "m" when computing the annualized return on this investment? 
A.  .33
B.  4.00
C.  .25
D.  3.00
E.  .40

16. Capital gains are included in the return on an investment: 
A.  only if the investment incurs a loss in value or is sold.
B.  whether or not the investment is sold.
C.  only if the investment is sold and the capital gain is realized.
D.  when either the investment is sold or the investment has been owned for at least one year.
E.  whenever dividends are paid.

17. When we refer to the rate of return on an investment, we are generally referring to the: 
A.  effective annual rate of return.
B.  capital gains yield.
C.  total percentage return.
D.  dividend yield.
E.  annualized dividend yield.

18. Which one of the following should be used to compare the overall performance of three different investments? 
A.  capital gains yield
B.  holding period percentage return
C.  holding period dollar return
D.  effective annual return
E.  dividend yield

19. If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's: 
A.  time value.
B.  total book value.
C.  market capitalization.
D.  market share.
E.  equity ratio.

20. Which one of the following is considered the best method of comparing the returns on various-sized investments? 
A.  real dollar return
B.  total dollar return
C.  absolute dollar return
D.  variance return
E.  percentage return

21. Which one of the following had the highest average return for the period 1926-2006? 
A.  U.S. Treasury bills
B.  long-term corporate bonds
C.  small-company stocks
D.  long-term government bonds
E.  large-company stocks

22. Which one of the following statements is correct based on the historical returns for the period 1926-2006? 
A.  Small-company stocks outperformed large-company stocks every year during the period.
B.  Bond prices, in general, were more volatile than stock prices.
C.  For the period, Treasury bills yielded a higher rate of return than long-term government bonds.
D.  The inflation rate exceeded the rate of return on Treasury bills during some years.
E.  For the period, large-company stocks outperformed small-company stocks.

23. Inflation, as measured by the Consumer Price Index, was highest during the period: 
A.  1992-1997.
B.  1952-1957.
C.  1930-1935.
D.  1977-1982.
E.  2001-2006.

24. Large-company stocks produced the highest rates of return during the period: 
A.  1969-1970.
B.  1939-1941.
C.  2004-2006
D.  2000-2002.
E.  1995-1997.

25. Which category(ies) of investments had an annual rate of return that exceeded 100 percent for at least one year during the period 1926-2006? 
A.  only large-company stocks
B.  both large-company and small-company stocks
C.  only small-company stocks
D.  corporate bonds, large-company stocks, and small-company stocks
E.  No category earned an annual return in excess of 100 percent for any given year during the period.

26. For the period 1926-2006, the annual return on large-company stocks: 
A.  was negative following every three-year period of positive returns.
B.  never exceeded a positive 30 percent nor lost more than 20 percent.
C.  remained negative for at least two consecutive years anytime that it was negative.
D.  was only negative for two or more consecutive years during the Great Depression.
E.  was unpredictable based on the prior year's performance.