Finance 3300 – Final Exam Review
Questions and Answers
A financial instrument on which a futures contract is based is called which one of the
following?
1- hedged security
2- short position
3- long position
4- speculative asset
5- underlying asset - ANS-5- underlying asset
The total dollar return on a share of stock is defined as the:
1 - change in the price of the stock over a period.
2 - dividend income divided by the beginning price per share.
3 - capital gain or loss plus any dividend income.
4 - change in the stock price divided by the original stock price.
5- annual dividend income received. - ANS-3 - capital gain or loss plus any dividend
income.
The dividend yield is defined as the annual dividend expressed as a percentage of the:
1- average stock price.
2- initial stock price.
3- ending stock price.
4- total annual return.
5- capital gain. - ANS-2- initial stock price.
When the total return on an investment is expressed on a per-year basis it is called the:
1- capital gains yield.
2- dividend yield.
3- holding period return.
4- effective annual return.
5- initial return. - ANS-4- effective annual return.
The rate of return earned on a U.S. Treasury bill is frequently used as a proxy for the:
1- risk premium.
2- deflated rate of return.
3- risk-free rate.
4- expected rate of return.
5- market rate of return. - ANS-3- risk-free rate.
,The risk premium is defined as the rate of return on:
1- a risky asset minus the risk-free rate.
2- the overall market.
3- a U.S. Treasury bill.
4- a risky asset minus the inflation rate.
5- a riskless investment. - ANS-1- a risky asset minus the risk-free rate.
The standard deviation is a measure of:
1- volatility.
2- total return.
3- capital gains.
4- changes in dividend yields.
5- changes in the capital gains rate. - ANS-1- volatility.
A frequency distribution, which is completely defined by its average (mean) and
variance or standard deviation, is referred to as a(n):
1- normal distribution.
2- variance distribution.
3- expected rate of return.
4- average geometric return.
5- average arithmetic return. - ANS-1- normal distribution.
The average compound return earned per year over a multi-year period is called the:
1- total return.
2- average capital gains yield.
3- variance.
4- arithmetic average return.
5- geometric average return. - ANS-5- 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:
1- total return.
2- average capital gains yield.
3- dollar-weighted average return.
4- arithmetic average return.
5- geometric average return. - ANS-3- 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?
1- .25
2- .33
,3- .40
4- 3.00
5- 4.00 - ANS-5- 4.00
If you multiply the number of shares outstanding for a stock by the price per share, you
are computing the firm's:
1- equity ratio.
2- total book value.
3- market share.
4- market capitalization.
5- time value. - ANS-4- market capitalization.
Which one of the following had the highest average return for the period 1926-2018?
1- large-company stocks
2- U.S. Treasury bills
3- long-term government bonds
4- small-company stocks
5- long-term corporate bonds - ANS-4- small-company stocks
Which one of the following had the highest risk premium for the period 1926-2018?
1- U.S. Treasury bills
2- long-term government bonds
3- large-company stocks
4- small-company stocks
5- intermediate-term government bonds - ANS-4- small-company stocks
Which one of the following had the narrowest bell curve for the period 1926-2018?
1- large-company stocks
2- long-term corporate bonds
3- long-term government bonds
4- small-company stocks
5- U.S. Treasury bills - ANS-5- U.S. Treasury bills
Which one of the following had the smallest standard deviation of returns for the period
1926-2018?
1- large-company stocks
2- small-company stocks
3- long-term government bonds
4- intermediate term government bonds
5- intermediate term corporate bonds - ANS-4- intermediate term government bonds
, The mean plus or minus one standard deviation defines the ________ percent
probability range of a normal distribution.
1- 50
2- 68
3- 82
4- 90
5- 95 - ANS-2- 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:
1- decrease the investment in stocks and increase the investment in bonds.
2- replace the corporate bonds with intermediate- term government bonds.
3- replace the corporate bonds with Treasury bills.
4- increase the standard deviation of the portfolio.
5- reduce the expected volatility of the portfolio. - ANS-4- 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.
1- higher; higher
2- higher; lower
3- lower; higher
4- lower; lower
5- The distribution of returns does not affect the expected average rate of return. - ANS-
1- 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?
1- 3.165%
2- 3.375%
3- 3.443%
4- 3.533%
5- 3.610% - ANS-3- 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?
1- 9.96%
Questions and Answers
A financial instrument on which a futures contract is based is called which one of the
following?
1- hedged security
2- short position
3- long position
4- speculative asset
5- underlying asset - ANS-5- underlying asset
The total dollar return on a share of stock is defined as the:
1 - change in the price of the stock over a period.
2 - dividend income divided by the beginning price per share.
3 - capital gain or loss plus any dividend income.
4 - change in the stock price divided by the original stock price.
5- annual dividend income received. - ANS-3 - capital gain or loss plus any dividend
income.
The dividend yield is defined as the annual dividend expressed as a percentage of the:
1- average stock price.
2- initial stock price.
3- ending stock price.
4- total annual return.
5- capital gain. - ANS-2- initial stock price.
When the total return on an investment is expressed on a per-year basis it is called the:
1- capital gains yield.
2- dividend yield.
3- holding period return.
4- effective annual return.
5- initial return. - ANS-4- effective annual return.
The rate of return earned on a U.S. Treasury bill is frequently used as a proxy for the:
1- risk premium.
2- deflated rate of return.
3- risk-free rate.
4- expected rate of return.
5- market rate of return. - ANS-3- risk-free rate.
,The risk premium is defined as the rate of return on:
1- a risky asset minus the risk-free rate.
2- the overall market.
3- a U.S. Treasury bill.
4- a risky asset minus the inflation rate.
5- a riskless investment. - ANS-1- a risky asset minus the risk-free rate.
The standard deviation is a measure of:
1- volatility.
2- total return.
3- capital gains.
4- changes in dividend yields.
5- changes in the capital gains rate. - ANS-1- volatility.
A frequency distribution, which is completely defined by its average (mean) and
variance or standard deviation, is referred to as a(n):
1- normal distribution.
2- variance distribution.
3- expected rate of return.
4- average geometric return.
5- average arithmetic return. - ANS-1- normal distribution.
The average compound return earned per year over a multi-year period is called the:
1- total return.
2- average capital gains yield.
3- variance.
4- arithmetic average return.
5- geometric average return. - ANS-5- 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:
1- total return.
2- average capital gains yield.
3- dollar-weighted average return.
4- arithmetic average return.
5- geometric average return. - ANS-3- 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?
1- .25
2- .33
,3- .40
4- 3.00
5- 4.00 - ANS-5- 4.00
If you multiply the number of shares outstanding for a stock by the price per share, you
are computing the firm's:
1- equity ratio.
2- total book value.
3- market share.
4- market capitalization.
5- time value. - ANS-4- market capitalization.
Which one of the following had the highest average return for the period 1926-2018?
1- large-company stocks
2- U.S. Treasury bills
3- long-term government bonds
4- small-company stocks
5- long-term corporate bonds - ANS-4- small-company stocks
Which one of the following had the highest risk premium for the period 1926-2018?
1- U.S. Treasury bills
2- long-term government bonds
3- large-company stocks
4- small-company stocks
5- intermediate-term government bonds - ANS-4- small-company stocks
Which one of the following had the narrowest bell curve for the period 1926-2018?
1- large-company stocks
2- long-term corporate bonds
3- long-term government bonds
4- small-company stocks
5- U.S. Treasury bills - ANS-5- U.S. Treasury bills
Which one of the following had the smallest standard deviation of returns for the period
1926-2018?
1- large-company stocks
2- small-company stocks
3- long-term government bonds
4- intermediate term government bonds
5- intermediate term corporate bonds - ANS-4- intermediate term government bonds
, The mean plus or minus one standard deviation defines the ________ percent
probability range of a normal distribution.
1- 50
2- 68
3- 82
4- 90
5- 95 - ANS-2- 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:
1- decrease the investment in stocks and increase the investment in bonds.
2- replace the corporate bonds with intermediate- term government bonds.
3- replace the corporate bonds with Treasury bills.
4- increase the standard deviation of the portfolio.
5- reduce the expected volatility of the portfolio. - ANS-4- 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.
1- higher; higher
2- higher; lower
3- lower; higher
4- lower; lower
5- The distribution of returns does not affect the expected average rate of return. - ANS-
1- 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?
1- 3.165%
2- 3.375%
3- 3.443%
4- 3.533%
5- 3.610% - ANS-3- 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?
1- 9.96%
