公司理财 习题库 Chap012

CHAPTER12SomeLessonsfromCapitalMarketHistoryI.DEFINITIONSRISKPREMIUMa1.Theexcessreturnrequiredfromariskyassetoverthatrequiredfromarisk-freeassetiscalledthe:a.riskpremium.b.geometricpremium.c.excessreturn.d.averagereturn.e.variance.VARIANCEb2.Theaveragesquareddifferencebetweentheactualreturnandtheaveragereturniscalledthe:a.volatilityreturn.b.variance.c.standarddeviation.d.riskpremium.e.excessreturn.STANDARDDEVIATIONc3.Thestandarddeviationforasetofstockreturnscanbecalculatedasthe:a.positivesquarerootoftheaveragereturn.b.averagesquareddifferencebetweentheactualreturnandtheaveragereturn.c.positivesquarerootofthevariance.d.averagereturndividedbyNminusone,whereNisthenumberofreturns.e.variancesquared.NORMALDISTRIBUTIONd4.Asymmetric,bell-shapedfrequencydistributionthatiscompletelydefinedbyitsmeanandstandarddeviationisthe_____distribution.a.gammab.Poissonc.bi-modald.normale.uniformGEOMETRICAVERAGERETURNd5.Theaveragecompoundreturnearnedperyearoveramulti-yearperiodiscalledthe_____averagereturn.a.arithmeticb.standardc.variantd.geometrice.realCHAPTER12ARITHMETICAVERAGERETURNa6.Thereturnearnedinanaverageyearoveramulti-yearperiodiscalledthe_____averagereturn.a.arithmeticb.standardc.variantd.geometrice.realEFFICIENTCAPITALMARKETe7.Anefficientcapitalmarketisoneinwhich:a.brokeragecommissionsarezero.b.taxesareirrelevant.c.securitiesalwaysofferapositiverateofreturntoinvestors.d.securitypricesareguaranteedbytheU.S.SecuritiesandExchangeCommissiontobefair.e.securitypricesreflectavailableinformation.EFFICIENTMARKETSHYPOTHESISa8.Thenotionthatactualcapitalmarkets,suchastheNYSE,arefairlypricediscalledthe:a.EfficientMarketsHypothesis(EMH.b.LawofOnePrice.c.OpenMarketsTheorem.d.Laissez-FaireAxiom.e.MonopolyPricingTheorem.STRONGFORMEFFICIENCYb9.Thehypothesisthatmarketpricesreflectallavailableinformationofeverykindiscalled_____formefficiency.a.openb.strongc.semi-strongd.weake.stableSEMISTRONGFORMEFFICIENCYc10.Thehypothesisthatmarketpricesreflectallpublicly-availableinformationiscalled_____formefficiency.a.openb.strongc.semi-strongd.weake.stableCHAPTER12WEAKFORMEFFICIENCYd11.Thehypothesisthatmarketpricesreflectallhistoricalinformationiscalled_____formefficiency.a.openb.strongc.semi-strongd.weake.stableII.CONCEPTSTOTALRETURNd12.Thetotalpercentagereturnonanequityinvestmentiscomputedusingtheformula______,whereP1isthepurchasecost,P2representsthesaleproceeds,anddisthedividendincome.a.(P2–P1÷(P2+db.(P1–P2÷(P2+dc.(P1–P2–d÷P1d.(P2–P1+d÷P1e.(P2–P1+d÷P2DIVIDENDYIELDa13.Thedividendyieldisequalto_____,whereP1isthepurchasecost,P2representsthesaleproceeds,anddisthedividendincome.a.d÷P1b.d⨯P1c.d÷P2d.d⨯P2e.d÷(P1+P2DIVIDENDYIELDc14.TheZoloCo.justdeclaredthattheyareincreasingtheirannualdividendfrom$1.00pershareto$1.25pershare.Ifthestockpriceremainsconstant,then:a.thecapitalgainsyieldwilldecrease.b.thecapitalgainsyieldwillincrease.c.thedividendyieldwillincrease.d.thedividendyieldwillalsoremainconstant.e.neitherthecapitalgainsyieldnorthedividendyieldwillchange.CAPITALGAINb15.Thedollaramountofthecapitalgainonaninvestmentiscomputedas_____,whereP1isthepurchasecost,P2representsthesaleproceeds,anddisthedividendincome.a.P1–P2b.P2–P1c.P2÷P1d.P1–P2+de.P2–P1–dCHAPTER12TOTALRETURNe16.Thecapitalgainsyieldplusthedividendyieldonasecurityiscalledthe:a.varianceofreturns.b.geometricreturn.c.averageperiodreturn.d.summationofreturns.e.totalreturn.REALRETURNc17.Therealrateofreturnonastockisapproximatelyequaltothenominalrateofreturn:a.multipliedby(1+inflationrate.b.plustheinflationrate.c.minustheinflationrate.d.dividedby(1+inflationrate.e.dividedby(1-inflationrate.REALRETURNc18.Aslongastheinflationrateispositive,therealrateofreturnonasecurityinvestmentwillbe____thenominalrateofreturn.a.greaterthanb.equaltoc.lessthand.greaterthanorequaltoe.unrelatedtoHISTORICALRECORDd19.Aportfoliooflargecompanystockswouldcontainwhichoneofthefollowingtypesofsecurities?a.stockofthefirmswhichrepresentthesmallest20percentofthecompanieslistedontheNYSEb.U.S.Treasurybillsc.long-termcorporatebondsd.stocksoffirmsincludedintheS&P500indexe.long-termgovernmentbondsHISTORICALRECORDd20.Basedontheperiodof1926through2003,_____havetendedtooutperformothersecuritiesoverthelong-term.a.U.S.Treasurybillsb.largecompanystocksc.long-termcorporatebondsd.smallcompanystockse.long-termgovernmentbondsCHAPTER12HISTORICALRECORDa21.Whichoneofthefollowingtypesofsecuritieshastendedtoproducethelowestrealrateofreturnfortheperiod1926through2003?a.U.S.Treasurybillsb.long-termgovernmentbondsc.smallcompanystocksd.largecompanystockse.long-termcorporatebondsHISTORICALRECORDd22.Onaverage,fortheperiod1926through2003:a.therealrateofreturnonU.S.Treasurybillshasbeennegative.b.smallcompanystockshaveunderperformedlargecompanystocks.c.long-termgovernmentbondshaveproducedhigherreturnsthanlong-termcorporatebonds.d.theriskpremiumonlong-termcorporatebondshasexceededtheriskpremiumonlong-termgovernmentbonds.e.theriskpremiumonlargecompanystockshasexceededtheriskpremiumonsmallcompanystocks.HISTORICALRECORDe23.Overtheperiodof1926through2003,theannualrateofreturnon_____hasbeenmorevolatilethantheannualrateofreturnon_____:a.largecompanystocks;smallcompanystocks.b.long-termgovernmentbonds;long-termcorporatebonds.c.U.S.Treasurybills;long-termgovernmentbonds.d.long-termcorporatebonds;smallcompanystocks.e.largecompanystocks;long-termcorporatebonds.HISTORICALRECORDd24.Duringtheperiodof1926through2003theannualrateofinflation:a.wasalwayspositive.b.wasonlynegativeduringthe3yearsoftheGreatDepression.c.neverexceeded10percent.d.fluctuatedsignificantlyfromoneyeartothenext.e.tendedtobenegativeduringtheyearsofWorldWarII.HISTORICALRECORDe25.Basedontheperiodof1926through2003theannualrateofinflationrangedfrom_____percentto_____percent.a.-5;6b.-5;9c.-7;6d.-7;15e.-10;18b26.$1investedinU.S.Treasurybillsin1926wouldhaveincreasedinvalueto____by2003.a.$10b.$17c.$30d.$43e.$60HISTORICALRECORDd27.Whichoneofthefollowingisacorrectrankingofsecuritiesbasedontheirvolatilityovertheperiodof1926to2003?Rankfromhighesttolowest.a.largecompanystocks,U.S.Treasurybills,long-termgovernmentbondsb.smallcompanystocks,long-termcorporatebonds,largecompanystocksc.smallcompanystocks,long-termgovernmentbonds,long-termcorporatebondsd.largecompanystocks,long-termcorporatebonds,long-termgovernmentbondse.long-termgovernmentbonds,long-termcorporatebonds,U.S.TreasurybillsHISTORICALRECORDd28.$1investedinsmallcompanystocksin1926wouldhaveincreasedinvalueto_____by2003.a.$60b.$2,284c.$4,092d.$10,953e.$13,185HISTORICALRECORDd29.Thehighestrateofannualinflationbetween1926and2003was_____percent.a.7b.10c.13d.18e.22HISTORICALRECORDe30.Theannualreturnonlong-termgovernmentbondshasrangedbetween_____percentand_____percentduringtheperiod1926to2003.a.-2;8b.-4;6c.-5;10d.-6;29e.-7;44e31.Overtheperiodof1926to2003,smallcompanystockshadanaveragereturnof_____percent.HISTORICALAVERAGERETURNSc32.Overtheperiodof1926to2003,theaveragerateofinflationwas_____percent.HISTORICALAVERAGERETURNSc33.Theaverageannualreturnonlong-termcorporatebondsfortheperiodof1926to2003was_____percent.AVERAGERETURNSb34.Theaverageannualreturnonsmallcompanystockswasabout_____percentgreaterthantheaverageannualreturnonlarge-companystocksovertheperiodof1926to2003.a.3b.5c.7d.9e.11RISKPREMIUMa35.TheaverageriskpremiumonU.S.Treasurybillsovertheperiodof1926to2003was_____percent.RISKPREMIUMa36.Whichoneofthefollowingisacorrectstatementconcerningriskpremium?a.Thegreaterthevolatilityofreturns,thegreatertheriskpremium.b.Thelowerthevolatilityofreturns,thegreatertheriskpremium.c.Thelowertheaveragerateofreturn,thegreatertheriskpremium.d.Theriskpremiumisnotcorrelatedtotheaveragerateofreturn.e.Theriskpremiumisnotaffectedbythevolatilityofreturns.RISKPREMIUMc37.Theriskpremiumiscomputedby______theaveragereturnfortheinvestment.a.subtractingtheinflationratefromb.addingtheinflationratetoc.subtractingtheaveragereturnontheU.S.Treasurybillfromd.addingtheaveragereturnontheU.S.Treasurybilltoe.subtractingtheaveragereturnonlong-termgovernmentbondsfromRISKPREMIUMc38.Theexcessreturnyouearnbymovingfromarelativelyrisk-freeinvestmenttoariskyinvestmentiscalledthe:a.geometricaveragereturn.b.inflationpremium.c.riskpremium.d.timepremium.e.arithmeticaveragereturn.RISKPREMIUMb39.Toconvinceinvestorstoacceptgreatervolatilityintheannualrateofreturnonaninvestment,youmust:a.decreasetheriskpremium.b.increasetheriskpremium.c.decreasetheexpectedrateofreturn.d.decreasetherisk-freerateofreturn.e.increasetherisk-freerateofreturn.FREQUENCYDISTRIBUTIONa40.Whichoneofthefollowingtakestheshapeofabellcurve?a.frequencydistributionb.variancec.riskpremiumgraphd.standarddeviatione.deviationofreturnsVARIANCEe41.Whichofthefollowingstatementsarecorrectconcerningthevarianceoftheannualreturnsonaninvestment?I.Thelargerthevariance,themoretheactualreturnstendtodifferfromtheaveragereturn.II.Thelargerthevariance,thelargerthestandarddeviation.III.Thelargerthevariance,thegreatertheriskoftheinvestment.IV.Thelargerthevariance,thehighertheexpectedreturn.a.IandIIIonlyb.II,III,andIVonlyc.I,III,andIVonlyd.I,II,andIIIonlye.I,II,III,andIVVARIANCEa42.Thevarianceofreturnsiscomputedbydividingthesumofthe:a.squareddeviationsbythenumberofreturnsminusone.b.averagereturnsbythenumberofreturnsminusone.c.averagereturnsbythenumberofreturnsplusone.d.squareddeviationsbytheaveragerateofreturn.e.squareddeviationsbythenumberofreturnsplusone.STANDARDDEVIATIONb43.Whichofthefollowingstatementsconcerningthestandarddeviationarecorrect?I.Thegreaterthestandarddeviation,thelowertherisk.II.Thestandarddeviationisameasureofvolatility.III.Thehigherthestandarddeviation,thelesscertaintherateofreturninanyonegivenyear.IV.Thehigherthestandarddeviation,thehighertheexpectedreturn.a.IandIIIonlyb.II,III,andIVonlyc.I,III,andIVonlyd.I,II,andIIIonlye.I,II,III,andIVSTANDARDDEVIATIONa44.Thestandarddeviationonsmallcompanystocks:I.isgreaterthanthestandarddeviationonlargecompanystocks.II.islessthanthestandarddeviationonlargecompanystocks.III.hadanaveragevalueofabout33percentfortheperiod1926to2003.IV.hadanaveragevalueofabout20percentfortheperiod1926to2003.a.IandIIIonlyb.IandIIonlyc.IIandIIIonlyd.IIandIVonlye.IandIVonlyARITHMETICVS.GEOMETRICAVERAGESb45.Estimatesusingthearithmeticaveragewillprobablytendto_____valuesoverthelong-termwhileestimatesusingthegeometricaveragewillprobablytendto_____valuesovertheshort-term.a.overestimate;overestimateb.overestimate;underestimatec.underestimate;overestimated.underestimate;underestimatee.accurately;accuratelyMARKETEFFICIENCYd46.Inanefficientmarket,thepriceofasecuritywill:a.alwaysriseimmediatelyuponthereleaseofnewinformationwithnofurtherpriceadjustmentsrelatedtothatinformation.b.reacttonewinformationoveratwo-dayperiodafterwhichtimenofurtherpriceadjustmentsrelatedtothatinformationwilloccur.c.risesharplywhennewinformationisfirstreleasedandthendeclinetoanewstablelevelbythefollowingday.d.reactimmediatelytonewinformationwithnofurtherpriceadjustmentsrelatedtothatinformation.e.beslowtoreactforthefirstfewhoursafternewinformationisreleasedallowingtimeforthatinformationtobereviewedandanalyzed.MARKETEFFICIENCYc47.Ifthefinancialmarketsareefficient,theninvestorsshouldexpecttheirinvestmentsinthosemarketsto:ducenegativereturnsonaroutinebasis.MARKETEFFICIENCYd48.Whichoneofthefollowingstatementsiscorrectconcerningmarketefficiency?a.Realassetmarketsaremoreefficientthanfinancialmarkets.b.Ifamarketisefficient,arbitrageopportunitiesshouldbecommon.c.Inanefficientmarket,somemarketparticipantswillhaveanadvantageoverothers.d.Afirmwillgenerallyreceiveafairpricewhenitsellssharesofstock.e.Newinformationwillgraduallybereflectedinastock’spricetoavoidanysuddenchangeinthepriceofthestock.MARKETEFFICIENCYc49.Financialmarketsfluctuatedailybecausethey:a.areinefficient.b.slowlyreacttonewinformation.c.arecontinuallyreactingtonewinformation.d.offertremendousarbitrageopportunities.e.onlyreflecthistoricalinformation.d50.Insidertradingdoesnotofferanyadvantagesifthefinancialmarketsare:a.weakformefficient.b.semiweak-formefficient.c.semistrong-formefficient.d.strong-formefficient.e.inefficient.MARKETEFFICIENCYe51.Accordingtotheory,studyinghistoricalpricesinordertoidentifymispricedstockswillnotworkinmarketsthatare_____efficient.I.weak-formII.semistrong-formIII.strong-forma.Ionlyb.IIonlyc.IandIIonlyd.IIandIIIonlye.I,II,andIIIMARKETEFFICIENCYe52.Whichofthefollowingtendtoreinforcetheargumentthatthefinancialmarketsareefficient?I.Informationspreadsrapidlyintoday’sworld.II.Thereistremendouscompetitioninthefinancialmarkets.III.Marketpricescontinuallyfluctuate.IV.Marketpricesreactsuddenlytounexpectednewsannouncements.a.IandIIIonlyb.IIandIVonlyc.I,II,andIIIonlyd.II,III,andIVonlye.I,II,III,andIVMARKETEFFICIENCYa53.Ifyouexcelinanalyzingthefutureoutlookoffirms,youwouldpreferthatthefinancialmarketsbe____formefficientsothatyoucanhaveanadvantageinthemarketplace.a.weakb.semiweakc.semistrongd.stronge.perfectc54.YourbestfriendworksinthefinanceofficeoftheDeltaCorporation.YouareawarethatthisfriendtradesDeltastockbasedoninformationheoverhearsintheoffice.Youknowthatthisinformationisnotknowntothegeneralpublic.YourfriendcontinuallybragstoyouabouttheprofitsheearnstradingDeltastock.Basedonthisinformation,youwouldtendtoarguethatthefinancialmarketsareatbest_____formefficient.a.weakb.semiweakc.semistrongd.stronge.perfectMARKETEFFICIENCYc55.TheU.S.SecuritiesandExchangeCommissionperiodicallychargesindividualsforinsidertradingandclaimsthoseindividualshavemadeunfairprofits.Basedonthisfact,youwouldtendtoarguethatthefinancialmarketsareatbest_____formefficient.a.weakb.semiweakc.semistrongd.stronge.perfectMARKETEFFICIENCYb56.Individualsthatcontinuallymonitorthefinancialmarketsseekingmispricedsecurities:a.tendtomakesubstantialprofitsonadailybasis.b.tendtomakethemarketsmoreefficient.c.areneverabletofindasecuritythatistemporarilymispriced.d.arealwaysquitesuccessfulusingonlywell-knownpublicinformationastheirbasisofevaluation.e.arealwaysquitesuccessfulusingonlyhistoricalpriceinformationastheirbasisofevaluation.III.PROBLEMSDOLLARRETURNSb57.Oneyearago,youpurchasedastockatapriceof$32.50.Thestockpaysquarterlydividendsof$.40pershare.Today,thestockisworth$34.60pershare.Whatisthetotalamountofyourdividendincometodatefromthisinvestment?a.$.40DOLLARRETURNSd58.Sixmonthsago,youpurchased100sharesofstockinABCCo.atapriceof$43.89ashare.ABCstockpaysaquarterlydividendof$.10ashare.Today,yousoldallofyoursharesfor$45.13pershare.Whatisthetotalamountofyourcapitalgainsonthisinvestment?DOLLARRETURNSd59.Ayearago,youpurchased300sharesofIXCTechnologies,Inc.stockatapriceof$9.03pershare.Thestockpaysanannualdividendof$.10pershare.Today,yousoldallofyoursharesfor$28.14pershare.Whatisyourtotaldollarreturnonthisinvestment?a.$5,703b.$5,733c.$5,753d.$5,763e.$5,853DIVIDENDYIELDb60.Youpurchased200sharesofstockatapriceof$36.72pershare.Overthelastyear,youhavereceivedtotaldividendincomeof$322.Whatisthedividendyield?a.3.2percentb.4.4percentc.6.8percentd.9.2percente.11.4percentDIVIDENDYIELDd61.Winslow,Inc.stockiscurrentlysellingfor$40ashare.Thestockhasadividendyieldof3.8percent.Howmuchdividendincomewillyoureceiveperyearifyoupurchase500sharesofthisstock?a.$152b.$190c.$329d.$760e.$1,053DIVIDENDYIELDc62.Oneyearago,youpurchasedastockatapriceof$32ashare.Today,yousoldthestockandrealizedatotalreturnof25percent.Yourcapitalgainwas$6ashare.Whatwasyourdividendyieldonthisstock?a.1.25percentb.3.75percentc.6.25percentd.18.75percente.21.25percentCAPITALGAINa63.Youjustsold200sharesofLangley,Inc.stockatapriceof$38.75ashare.Lastyearyoupaid$41.50asharetobuythisstock.Overthecourseoftheyear,youreceiveddividendstotaling$1.64pershare.Whatisyourcapitalgainonthisinvestment?a.-$550b.-$222c.-$3d.$550e.$878CAPITALGAINb64.Youpurchased300sharesofDeltona,Inc.stockfor$44.90ashare.Youhavereceivedatotalof$630individendsand$14,040inproceedsfromsellingtheshares.Whatisyourcapitalgainsyieldonthisstock?a.4.06percentb.4.23percentc.4.68percentd.8.55percente.8.91percentCAPITALGAINd65.Today,yousold200sharesofSLG,Inc.stock..Yourtotalreturnonthesesharesis12.5percent.Youpurchasedthesharesoneyearagoatapriceof$28.50ashare.Youhavereceivedatotalof$280individendsoverthecourseoftheyear.Whatisyourcapitalgainsyieldonthisinvestment?a.4.80percentb.5.00percentc.6.67percentd.7.59percente.11.67percentTOTALRETURNd66.Sixmonthsago,youpurchased1,200sharesofABCstockfor$21.20ashare.Youhavereceiveddividendpaymentsequalto$.60ashare.Today,yousoldallofyoursharesfor$22.20ashare.Whatisyourtotaldollarreturnonthisinvestment?a.$720b.$1,200c.$1,440d.$1,920e.$3,840TOTALRETURNashare.Thecompanypaysquarterlydividendsof$.50ashare.Today,yousoldallofyoursharesfor$49.30ashare.Whatisyourtotalpercentagereturnonthisinvestment?a.-10.2percentb.-9.3percentc.-8.4percentd.12.0percente.13.4percentREALRETURNb68.Lastyear,youpurchasedastockatapriceof$51.50ashare.Overthecourseoftheyear,youreceived$1.80individendsandinflationaveraged2.8percent.Today,yousoldyoursharesfor$53.60ashare.Whatisyourapproximaterealrateofreturnonthisinvestment?a.2.4percentb.4.8percentc.6.2percentd.7.6percente.10.4percentREALRETURNe69.Sevenmonthsago,youpurchasedastockatapriceof$36.04ashare.Today,yousoldthosesharesfor$43.15ashare.Duringthepastsevenmonths,youhavereceiveddividendstotaling$0.24asharewhileinflationhasaveraged3.6percent.Whatisyourapproximaterealrateofreturnonthisinvestment?a.12.9percentb.13.4percentc.16.1percentd.16.5percente.16.8percentSTANDARDDEVIATIONd70.Astockhadreturnsof8percent,-2percent,4percent,and16percentoverthepastfouryears.Whatisthestandarddeviationofthisstockforthepastfouryears?a.6.3percentb.6.6percentc.7.1percentd.7.5percente.7.9percentpercent.Whichoneofthefollowingbestdescribestheprobabilitythatthisstockwilllose11percentormoreinanyonegivenyear?a.lessthan0.5percentb.lessthan1.0percentc.lessthan1.5percentd.lessthan2.5percente.lessthan5percentRETURNDISTRIBUTIONSd72.Astockhasreturnsof3percent,18percent,-24percent,and16percentforthepastfouryears.Basedonthisinformation,whatisthe95percentprobabilityrangeforanyonegivenyear?a.-8.4to11.7percentb.-16.1to22.6percentc.-24.5to34.3percentd.-35.4to41.9percente.-54.8to61.3percentRETURNDISTRIBUTIONSc73.Astockhadreturnsof8percent,14percent,and2percentforthepastthreeyears.Basedonthesereturns,whatistheprobabilitythatthisstockwillearnatleast20percentinanyonegivenyear?a.0.5percentb.1.0percentc.2.5percentd.5.0percente.16.0percentRETURNDISTRIBUTIONSc74.Astockhadreturnsof11percent,1percent,9percent,15percent,and-6percentforthepastfiveyears.Basedonthesereturns,whatistheapproximateprobabilitythatthisstockwillearnatleast23percentinanyonegivenyear?a.0.5percentb.1.0percentc.2.5percentd.5.0percente.16.0percentRETURNDISTRIBUTIONSc75.Astockhadreturnsof8percent,39percent,11percent,and-24percentforthepastfouryears.WhichoneofthefollowingbestdescribestheprobabilitythatthisstockwillNOTlosemorethan43percentinanyonegivenyear?a.84.0percentb.95.0percentc.97.5percentd.99.0percente.99.5percentb76.Overthepastfiveyears,astockproducedreturnsof14percent,22percent,-16percent,2percent,and10percent.WhatistheprobabilitythataninvestorinthisstockwillNOTlosemorethan8percentnorearnmorethan21percentinanyonegivenyear?a.34percentb.68percentc.95percentd.99percente.100percentARITHMETICAVERAGEb77.Whatarethearithmeticandgeometricaveragereturnsforastockwithannualreturnsof4percent,9percent,-6percent,and18percent?a.5.89percent;6.25percentb.6.25percent;5.89percentc.6.25percent;8.33percentd.8.3percent;5.89percente.8.3percent;6.25percentARITHMETICVS.GEOMETRICAVERAGESc78.Whatarethearithmeticandgeometricaveragereturnsforastockwithannualreturnsof21percent,8percent,-32percent,41percent,and5percent?a.5.6percent;8.6percentb.5.6percent;6.3percentc.8.6percent;5.6percentd.8.6percent;8.6percente.8.6percent;6.3percentGEOMETRICAVERAGEb79.Astockhadreturnsof6percent,13percent,-11percent,and17percentoverthepastfouryears.Whatisthegeometricaveragereturnforthistimeperiod?a.4.5percentb.5.7percentc.6.2percentd.7.3percente.8.2percentGEOMETRICAVERAGEb80.Astockhadthefollowingpricesanddividends.Whatisthegeometricaveragereturnonthisstock?YearPriceDividend2$24.90$.233$23.18$.244$24.86$.25a.3.2percentb.3.4percentc.3.6percentd.3.8percente.4.0percentIV.ESSAYSEFFICIENTMARKETS81.Definethethreeformsofmarketefficiency.Thestudentshouldpresentastraightforwarddiscussionofweak(allpastpricesareinthecurrentprice,semi-strong(allpublicinformationisinthecurrentprice,andstrongform(allinformationisinthecurrentpricemarketefficiency.HISTORICALRETURNS82.Whatsecuritieshaveofferedthehighestaverageannualreturnsoverthelastseveraldecades?Canweconcludethatreturnandriskarerelatedinreallife?Thepurposeofthisquestionistocheckstudentunderstandingofthecapitalmarkethistorydiscussionofthechapter,aswellastoreiteratetheconceptoftherisk-returntrade-off.Thesecuritiescategoriesdiscussedinthechapterarelistedbelowindescendingorderofhistoricalreturns(andrisk:1.smallcompanystocks2.largecompanystocks3.long-termcorporatebonds4.long-termgovernmentbonds5.U.S.TreasurybillsBylearningthishierarchy,andgiventhattheyarefamiliarwiththeattributesofeachsecurity,studentsshouldbeleftwithlittledoubtthatthemaxim“Thegreatertherisk,thegreaterthereturn”isanaptdescriptionoffinancialmarkets.LESSONS83.Whatarethelessonslearnedfromcapitalmarkethistory?Whatevidenceistheretosuggesttheselessonsarecorrect?First,thereisarewardforbearingrisk,andsecond,thegreatertherisk,thegreaterthereward.Asevidence,thestudentsshouldprovideabriefdiscussionofthehistoricalratesofreturnandstandarddeviationofreturnsofthevariousassetclassesdiscussedinthetext.EFFICIENTMARKETS84.Explainwhyitisthatinanefficientmarket,investmentshaveanexpectedNPVofzero.Inanefficientmarket,pricesare“fair”sothatthecostofaninvestmentisneithertoohighnortoolow.Thus,onaverage,investmentsinthatmarketwillyieldazeroNPV.Investorsgetexactlywhattheypayforwhentheybuyasecurityinanefficientmarketandfirmsgetexactlywhattheirstocksandbondsareworthwhentheysellthem.EFFICIENTMARKETS85.Doyouthinkthelessonsfromcapitalmarkethistorywillholdforeachyearinthefuture?Thatis,asanexample,ifyoubuysmallstockswillyourinvestmentalwaysoutperformU.S.Treasurybonds?Thestudentshouldrealizethatweareworkingwithaverages,sotheyshouldnotexpectriskierassetstoalwaysoutperformlessriskyassets.Thestudentshouldexplainsomewhereintheiranswerthatthisgetstotheheartofwhatriskis.Thatis,thereasonyouexpecttoearnahigherreturnoverthelonghaulisthatyourvariabilityinpricefromyeartoyearcanbesig