Fundamentals of Corporate Finance (2015), 3e (Berk/DeMarzo/Harford) test bank.

Fundamentals of Corporate Finance, 3e (Berk/DeMarzo/Harford)
Chapter 11 Risk and Return in Capital Markets

11.1 A First Look at Risk and Return

1) On average, stocks have delivered higher returns than bonds in the long run.
Answer: TRUE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised

2) In the United States over the long term, small stocks have provided the highest return
followed by the large stocks in the S&P 500.
Answer: TRUE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised

3) Rational investors ________ fluctuations in the value of their investments.
A) are averse to
B) prefer
C) are indifferent to
D) are in favor of
Answer: A
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised

4) Stocks with high returns are expected to have ________.
A) high variability
B) low variability
C) no relation to variability
D) inverse relationship with variability
Answer: A
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised




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,5) Historically, stocks have delivered a ________ return on average compared to Treasury
bills but have experienced ________ fluctuations in values.
A) higher, higher
B) higher, lower
C) lower, higher
D) lower, lower
Answer: A
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised

6) Investors demand a higher return for investments that have larger fluctuations in values
because ________.
A) they do not like risk
B) they are risk seeking
C) they invest for the long term
D) they prefer fluctuations
Answer: A
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised

7) Which of the following investments offered the lowest overall return over the past eighty
years?
A) small stocks
B) Treasury bills
C) S&P 500
D) corporate bonds
Answer: B
Diff: 1 Var: 1
Skill: Definition
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised




2
Copyright © 2015 Pearson Education, Inc.

,8) Which of the following investments offered the highest overall return over the past
eighty years?
A) Treasury bills
B) S&P 500
C) small stocks
D) corporate bonds
Answer: C
Diff: 1 Var: 1
Skill: Definition
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised

9) Which of the following investments had the largest fluctuations overall return over the
past eighty years?
A) small stocks
B) S&P 500
C) corporate bonds
D) Treasury bills
Answer: A
Diff: 1 Var: 1
Skill: Definition
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised

11.2 Historical Risks and Returns of Stocks

1) Suppose you invested $60 in the Ishares Dividend Stock Fund (DVY) a month ago. It paid
a dividend of $0.63 today and then you sold it for $65. What was your return on the
investment?
A) 6.57%
B) 7.51%
C) 9.38%
D) 10.32%
Answer: C
Explanation: C) $(65 + 0.63) - 60 = 5.63;
5. = 9.38%
Diff: 1 Var: 50+
Skill: Analytical
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised




3
Copyright © 2015 Pearson Education, Inc.

, 2) Suppose you invested $59 in the Ishares Dividend Stock Fund (DVY) a month ago. It paid
a dividend of 0.38 today and then you sold it for $66. What was your return on the
investment?
A) 8.76%
B) 13.76%
C) 12.51%
D) 10.01%
Answer: C
Explanation: C) $(66 + 0.38) - 59 = 7.38;
7. = 12.51%
Diff: 1 Var: 50+
Skill: Analytical
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised

3) Suppose you invested $79 in the Ishares Dividend Stock Fund (DVY) a month ago. It paid
a dividend of $0.41 today and then you sold it for $66. What was your return on the
investment?
A) -20.72%
B) -$15.94%
C) -18.33%
D) -17.53%
Answer: B
Explanation: B) $(66 + 0.41) - 79 = -12.59; -12.59/79 = -15.94%
Diff: 2 Var: 50+
Skill: Analytical
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised

4) Greg purchased stock in Bear Stearns and Co. at a price of $88 per share one year ago.
The company was acquired by JP Morgan at a price of $11 per share. What is Greg's return
on his investment?
A) -87.50%
B) -113.75%
C) -100.62%
D) -96.25%
Answer: A
Explanation: A) $(11 - 88) = -$77; -$77 / $88 = -87.50%
Diff: 1 Var: 36
Skill: Analytical
AACSB Objective: Analytic Skills
Author: KB
Question Status: Revised




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Copyright © 2015 Pearson Education, Inc.