FIN 3300 Midterm Exam Review
Questions and Answers
The total dollar return on a share of stock is defined as the: - ANSWER-Capital gain or
loss plus any dividend income
The dividend yield is defined as the annual dividend expressed as a percentage of the: -
ANSWER-initial stock price
When the total return on an investment is expressed on a per-year basis it is called the:
- ANSWER-effective annual return
The rate of return earned on a U.S. Treasury bill is frequently used as a proxy for the: -
ANSWER-risk-free rate
The risk premium is defined as the rate of return on: - ANSWER-a risky asset - the risk-
free rate
The standard deviation is a measure of: - ANSWER-volatility
A frequency distribution, which is completely defined by its average (mean) and
variance or standard deviation, is referred to as a(n): - ANSWER-normal distribution
The average compound return earned per year over a multi-year period is called the: -
ANSWER-geometric average return
The average compound return earned per year over a multi-year period when
investment inflows and outflows are considered is called the: - ANSWER-dollar-
weighted average return
Stacey purchased 300 shares of Coulter Industries stock and held it for 3 months before
reselling it. What is the value of "m" when computing the annualized return on this
investment? - ANSWER-4.00
If you multiply the number of shares outstanding for a stock by the price per share, you
are computing the firm's: - ANSWER-market capitalization
Which one of the following had the highest average return for the period 1926-2018? -
ANSWER-small-company stocks
,Which one of the following had the highest risk premium for the period 1926-2018? -
ANSWER-small-company stocks
Which one of the following had the narrowest bell curve for the period 1926-2018? -
ANSWER-U.S-Treasury Bills
Which one of the following had the smallest standard deviation of returns for the period
1926-2018? - ANSWER-intermediate government bonds
The mean plus or minus one standard deviation defines the ________ percent
probability range of a normal distribution. - ANSWER-68
Assume you own a portfolio that is invested 50 percent in large-company stocks and 50
percent in corporate bonds. If you want to increase the potential annual return on this
portfolio, you could: - ANSWER-increase the standard deviation of the portfolio
The wider the distribution of an investment's returns over time, the ________ the
expected average rate of return and the ________ the expected volatility of those
returns. - ANSWER-higher; higher
One year ago, you purchased 200 shares of Southern Foods common stock for $39.50
a share. Today, you sold your shares for $35.40 a share. During this past year, the
stock paid $1.36 in dividends per share. What is your dividend yield on this investment?
- ANSWER-3.443%
One year ago, you purchased 500 shares of stock at a cost of $10,500. The stock paid
an annual dividend of $1.10 per share. Today, you sold those shares for $23.90 each.
What is the capital gains yield on this investment? - ANSWER-13.81%
One year ago, you purchased 400 shares of Southern Cotton at $36.20 a share. During
the past year, you received a total of $250 in dividends. Today, you sold your shares for
$38.50 a share. What is your total return on this investment? - ANSWER-8.08%
Todd purchased 600 shares of stock at a price of $68.20 a share and received a
dividend of $1.42 per share. After six months, he resold the stock for $71.30 a share.
What was his total dollar return? - ANSWER-$2712
Christine owns a stock that dropped in price from $43.57 per share to $39.49 per share
over the past year. The dividend yield on that stock is 1.6 percent. What is her total
return on this investment for the year?
−11.31% - ANSWER--7.76%
Ellen just sold a stock and realized a 7.5 percent return for a 7-month holding period.
What was her annualized rate of return? - ANSWER-13.20%
, Eight months ago, you purchased 300 shares of a non-dividend paying stock for $27 a
share. Today, you sold those shares for $31.59 a share. What was your annualized rate
of return on this investment? - ANSWER-26.55%
Last year, ABC stock returned 12.6 percent, the risk-free rate was 4.0 percent, and the
inflation rate was 2.5 percent. What was the risk premium on ABC stock? - ANSWER-
8.60%
An asset had annual returns of 12, 18, 6, −9, and 5 percent, respectively, for the last
five years. What is the variance of these returns? - ANSWER-0.01013
An asset had annual returns of 13, 10, −14, 3, and 36 percent, respectively, for the past
five years. What is the standard deviation of these returns? - ANSWER-18.09%
Big Town Markets common stock returned 14.3, 12.5, 9.9, 6.5, and 11.1 percent,
respectively, over the past five years. What is the arithmetic average return? -
ANSWER-10.86%
Blackstone Mines stock returned 10.5, 17.2, −9.0, and 14.5 percent over the past four
years, respectively. What is the geometric average return? - ANSWER-7.78%
Market timing is the: - ANSWER-buying and selling of securities in anticipation of the
overall direction of the market.
Asset allocation is the: - ANSWER-distribution of investment funds among various
broad asset classes.
A Roth IRA: - ANSWER-invests after-tax dollars
A brokerage account in which purchases can be made using credit is referred to as
which type of account? - ANSWER-margin
Which one of the following best describes the term "initial margin"? - ANSWER-Amount
of cash that must be paid to purchase a security on margin
The minimum equity that must be maintained at all times in a margin account is called
the: - ANSWER-macitence margin
When your equity position in a security is less than the required amount, your brokerage
firm will issue a: - ANSWER-margin call
This morning, Josh sold 800 shares of stock that he did not own. This sale is referred to
as a: - ANSWER-short sale
A company that owns income-producing real estate such as an apartment complex or a
retail shopping center is called a(n): - ANSWER-REIT
Questions and Answers
The total dollar return on a share of stock is defined as the: - ANSWER-Capital gain or
loss plus any dividend income
The dividend yield is defined as the annual dividend expressed as a percentage of the: -
ANSWER-initial stock price
When the total return on an investment is expressed on a per-year basis it is called the:
- ANSWER-effective annual return
The rate of return earned on a U.S. Treasury bill is frequently used as a proxy for the: -
ANSWER-risk-free rate
The risk premium is defined as the rate of return on: - ANSWER-a risky asset - the risk-
free rate
The standard deviation is a measure of: - ANSWER-volatility
A frequency distribution, which is completely defined by its average (mean) and
variance or standard deviation, is referred to as a(n): - ANSWER-normal distribution
The average compound return earned per year over a multi-year period is called the: -
ANSWER-geometric average return
The average compound return earned per year over a multi-year period when
investment inflows and outflows are considered is called the: - ANSWER-dollar-
weighted average return
Stacey purchased 300 shares of Coulter Industries stock and held it for 3 months before
reselling it. What is the value of "m" when computing the annualized return on this
investment? - ANSWER-4.00
If you multiply the number of shares outstanding for a stock by the price per share, you
are computing the firm's: - ANSWER-market capitalization
Which one of the following had the highest average return for the period 1926-2018? -
ANSWER-small-company stocks
,Which one of the following had the highest risk premium for the period 1926-2018? -
ANSWER-small-company stocks
Which one of the following had the narrowest bell curve for the period 1926-2018? -
ANSWER-U.S-Treasury Bills
Which one of the following had the smallest standard deviation of returns for the period
1926-2018? - ANSWER-intermediate government bonds
The mean plus or minus one standard deviation defines the ________ percent
probability range of a normal distribution. - ANSWER-68
Assume you own a portfolio that is invested 50 percent in large-company stocks and 50
percent in corporate bonds. If you want to increase the potential annual return on this
portfolio, you could: - ANSWER-increase the standard deviation of the portfolio
The wider the distribution of an investment's returns over time, the ________ the
expected average rate of return and the ________ the expected volatility of those
returns. - ANSWER-higher; higher
One year ago, you purchased 200 shares of Southern Foods common stock for $39.50
a share. Today, you sold your shares for $35.40 a share. During this past year, the
stock paid $1.36 in dividends per share. What is your dividend yield on this investment?
- ANSWER-3.443%
One year ago, you purchased 500 shares of stock at a cost of $10,500. The stock paid
an annual dividend of $1.10 per share. Today, you sold those shares for $23.90 each.
What is the capital gains yield on this investment? - ANSWER-13.81%
One year ago, you purchased 400 shares of Southern Cotton at $36.20 a share. During
the past year, you received a total of $250 in dividends. Today, you sold your shares for
$38.50 a share. What is your total return on this investment? - ANSWER-8.08%
Todd purchased 600 shares of stock at a price of $68.20 a share and received a
dividend of $1.42 per share. After six months, he resold the stock for $71.30 a share.
What was his total dollar return? - ANSWER-$2712
Christine owns a stock that dropped in price from $43.57 per share to $39.49 per share
over the past year. The dividend yield on that stock is 1.6 percent. What is her total
return on this investment for the year?
−11.31% - ANSWER--7.76%
Ellen just sold a stock and realized a 7.5 percent return for a 7-month holding period.
What was her annualized rate of return? - ANSWER-13.20%
, Eight months ago, you purchased 300 shares of a non-dividend paying stock for $27 a
share. Today, you sold those shares for $31.59 a share. What was your annualized rate
of return on this investment? - ANSWER-26.55%
Last year, ABC stock returned 12.6 percent, the risk-free rate was 4.0 percent, and the
inflation rate was 2.5 percent. What was the risk premium on ABC stock? - ANSWER-
8.60%
An asset had annual returns of 12, 18, 6, −9, and 5 percent, respectively, for the last
five years. What is the variance of these returns? - ANSWER-0.01013
An asset had annual returns of 13, 10, −14, 3, and 36 percent, respectively, for the past
five years. What is the standard deviation of these returns? - ANSWER-18.09%
Big Town Markets common stock returned 14.3, 12.5, 9.9, 6.5, and 11.1 percent,
respectively, over the past five years. What is the arithmetic average return? -
ANSWER-10.86%
Blackstone Mines stock returned 10.5, 17.2, −9.0, and 14.5 percent over the past four
years, respectively. What is the geometric average return? - ANSWER-7.78%
Market timing is the: - ANSWER-buying and selling of securities in anticipation of the
overall direction of the market.
Asset allocation is the: - ANSWER-distribution of investment funds among various
broad asset classes.
A Roth IRA: - ANSWER-invests after-tax dollars
A brokerage account in which purchases can be made using credit is referred to as
which type of account? - ANSWER-margin
Which one of the following best describes the term "initial margin"? - ANSWER-Amount
of cash that must be paid to purchase a security on margin
The minimum equity that must be maintained at all times in a margin account is called
the: - ANSWER-macitence margin
When your equity position in a security is less than the required amount, your brokerage
firm will issue a: - ANSWER-margin call
This morning, Josh sold 800 shares of stock that he did not own. This sale is referred to
as a: - ANSWER-short sale
A company that owns income-producing real estate such as an apartment complex or a
retail shopping center is called a(n): - ANSWER-REIT
