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1、CHAPTER 12Some Lessons from Capital Market HistoryI.DEFINITIONSRISK PREMIUMa1.The excess return required from a risky asset over that required from a risk-free asset is called the:a.risk premium.b.geometric premium.c.excess return.d.average return.e.variance.VARIANCEb2.The average squared difference
2、 between the actual return and the average return is called the:a.volatility return.b.variance.c.standard deviation.d.risk premium.e.excess return.STANDARD DEVIATIONc3.The standard deviation for a set of stock returns can be calculated as the:a.positive square root of the average return.b.average sq
3、uared difference between the actual return and the average return.c.positive square root of the variance.d.average return divided by N minus one, where N is the number of returns.e.variance squared.NORMAL DISTRIBUTIONd4.A symmetric, bell-shaped frequency distribution that is completely defined by it
4、s mean and standard deviation is the _ distribution.a.gammab.Poissonc.bi-modald.normale.uniformGEOMETRIC AVERAGE RETURNd5.The average compound return earned per year over a multi-year period is called the _ average return.a.arithmeticb.standardc.variantd.geometrice.realARITHMETIC AVERAGE RETURNa6.Th
5、e return earned in an average year over a multi-year period is called the _ average return.a.arithmeticb.standardc.variantd.geometrice.realEFFICIENT CAPITAL MARKETe7.An efficient capital market is one in which:a.brokerage commissions are zero.b.taxes are irrelevant.c.securities always offer a positi
6、ve rate of return to investors.d.security prices are guaranteed by the U.S. Securities and Exchange Commission to be fair.e.security prices reflect available information.EFFICIENT MARKETS HYPOTHESISa8.The notion that actual capital markets, such as the NYSE, are fairly priced is called the:a.Efficie
7、nt Markets Hypothesis (EMH).b.Law of One Price.c.Open Markets Theorem.d.Laissez-Faire Axiom.e.Monopoly Pricing Theorem.STRONG FORM EFFICIENCYb9.The hypothesis that market prices reflect all available information of every kind is called _ form efficiency.a.openb.strongc.semi-strongd.weake.stableSEMI
8、STRONG FORM EFFICIENCYc10.The hypothesis that market prices reflect all publicly-available information is called _ form efficiency.a.openb.strongc.semi-strongd.weake.stableWEAK FORM EFFICIENCYd11.The hypothesis that market prices reflect all historical information is called _ form efficiency.a.openb
9、.strongc.semi-strongd.weake.stableII.CONCEPTSTOTAL RETURNd12.The total percentage return on an equity investment is computed using the formula _, where P1 is the purchase cost, P2 represents the sale proceeds, and d is the dividend income.a.(P2 P1) (P2 + d)b.(P1 P2) (P2 + d)c.(P1 P2 d) P1d.(P2 P1 +
10、d) P1e.(P2 P1 + d) P2DIVIDEND YIELDa13.The dividend yield is equal to _, where P1 is the purchase cost, P2 represents the sale proceeds, and d is the dividend income.a.d P1b.d P1c.d P2d.d P2e.d (P1 + P2)DIVIDEND YIELDc14.The Zolo Co. just declared that they are increasing their annual dividend from
11、$1.00 per share to $1.25 per share. If the stock price remains constant, then:a.the capital gains yield will decrease.b.the capital gains yield will increase.c.the dividend yield will increase.d.the dividend yield will also remain constant.e.neither the capital gains yield nor the dividend yield wil
12、l change.CAPITAL GAINb15.The dollar amount of the capital gain on an investment is computed as _, where P1 is the purchase cost, P2 represents the sale proceeds, and d is the dividend income.a.P1 P2b.P2 P1c.P2 P1d.P1 P2 + de.P2 P1 dTOTAL RETURNe16.The capital gains yield plus the dividend yield on a
13、 security is called the:a.variance of returns.b.geometric return.c.average period return.d.summation of returns.e.total return.REAL RETURNc17.The real rate of return on a stock is approximately equal to the nominal rate of return:a.multiplied by (1 + inflation rate).b.plus the inflation rate.c.minus
14、 the inflation rate.d.divided by (1 + inflation rate).e.divided by (1- inflation rate).REAL RETURNc18.As long as the inflation rate is positive, the real rate of return on a security investment will be _ the nominal rate of return.a.greater thanb.equal toc.less thand.greater than or equal toe.unrela
15、ted toHISTORICAL RECORDd19.A portfolio of large company stocks would contain which one of the following types of securities?a.stock of the firms which represent the smallest 20 percent of the companies listed on the NYSEb.U.S. Treasury billsc.long-term corporate bondsd.stocks of firms included in th
16、e S&P 500 indexe.long-term government bondsHISTORICAL RECORDd20.Based on the period of 1926 through 2023, _ have tended to outperform other securities over the long-term.a.U.S. Treasury billsb.large company stocksc.long-term corporate bondsd.small company stockse.long-term government bondsHISTORICAL
17、 RECORDa21.Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2023?a.U.S. Treasury billsb.long-term government bondsc.small company stocksd.large company stockse.long-term corporate bondsHISTORICAL RECORDd22.On average, for
18、 the period 1926 through 2023:a.the real rate of return on U.S. Treasury bills has been negative.b.small company stocks have underperformed large company stocks.c.long-term government bonds have produced higher returns than long-term corporate bonds.d.the risk premium on long-term corporate bonds ha
19、s exceeded the risk premium on long-term government bonds.e.the risk premium on large company stocks has exceeded the risk premium on small company stocks.HISTORICAL RECORDe23.Over the period of 1926 through 2023, the annual rate of return on _ has been more volatile than the annual rate of return o
20、n_:a.large company stocks; small company stocks.b.long-term government bonds; long-term corporate bonds.c.U.S. Treasury bills; long-term government bonds.d.long-term corporate bonds; small company stocks.e.large company stocks; long-term corporate bonds.HISTORICAL RECORDd24.During the period of 1926
21、 through 2023 the annual rate of inflation:a.was always positive.b.was only negative during the 3 years of the Great Depression.c.never exceeded 10 percent.d.fluctuated significantly from one year to the next.e.tended to be negative during the years of World War II.HISTORICAL RECORDe25.Based on the
22、period of 1926 through 2023 the annual rate of inflation ranged from _ percent to _ percent.a.-5; 6b.-5; 9c.-7; 6d.-7; 15e.-10; 18HISTORICAL RECORDb26.$1 invested in U.S. Treasury bills in 1926 would have increased in value to _ by 2023.a.$10b.$17c.$30d.$43e.$60HISTORICAL RECORDd27.Which one of the
23、following is a correct ranking of securities based on their volatility over the period of 1926 to 2023? Rank from highest to lowest.a.large company stocks, U.S. Treasury bills, long-term government bondsb.small company stocks, long-term corporate bonds, large company stocksc.small company stocks, lo
24、ng-term government bonds, long-term corporate bondsd.large company stocks, long-term corporate bonds, long-term government bondse.long-term government bonds, long-term corporate bonds, U.S. Treasury billsHISTORICAL RECORDd28.$1 invested in small company stocks in 1926 would have increased in value t
25、o _ by 2023.a.$60b.$2,284c.$4,092d.$10,953e.$13,185HISTORICAL RECORDd29.The highest rate of annual inflation between 1926 and 2023 was_ percent.a.7b.10c.13d.18e.22HISTORICAL RECORDe30.The annual return on long-term government bonds has ranged between _ percent and _ percent during the period 1926 to
26、 2023.a.-2; 8b.-4; 6c.-5; 10d.-6; 29e.-7; 44HISTORICAL RECORDe31.Over the period of 1926 to 2023, small company stocks had an average return of _ percent.a.8.8b.10.2c.12.4d.14.6e.17.5HISTORICAL AVERAGE RETURNSc32.Over the period of 1926 to 2023, the average rate of inflation was _ percent.a.2.0b.2.7
27、c.3.1d.3.8e.4.3HISTORICAL AVERAGE RETURNSc33.The average annual return on long-term corporate bonds for the period of 1926 to 2023 was _ percent.a.3.8b.5.8c.6.2d.7.9e.8.4AVERAGE RETURNSb34.The average annual return on small company stocks was about _ percent greater than the average annual return on
28、 large-company stocks over the period of 1926 to 2023.a.3b.5c.7d.9e.11RISK PREMIUMa35.The average risk premium on U.S. Treasury bills over the period of 1926 to 2023 was _ percent.a.0.0b.1.6c.2.2d.3.1e.3.8RISK PREMIUMa36.Which one of the following is a correct statement concerning risk premium?a.The
29、 greater the volatility of returns, the greater the risk premium.b.The lower the volatility of returns, the greater the risk premium.c.The lower the average rate of return, the greater the risk premium.d.The risk premium is not correlated to the average rate of return.e.The risk premium is not affec
30、ted by the volatility of returns.RISK PREMIUMc37.The risk premium is computed by _ the average return for the investment.a.subtracting the inflation rate fromb.adding the inflation rate toc.subtracting the average return on the U.S. Treasury bill fromd.adding the average return on the U.S. Treasury
31、bill toe.subtracting the average return on long-term government bonds fromRISK PREMIUMc38.The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:a.geometric average return.b.inflation premium.c.risk premium.d.time premium.e.arithmetic average
32、return.RISK PREMIUMb39.To convince investors to accept greater volatility in the annual rate of return on an investment, you must:a.decrease the risk premium.b.increase the risk premium.c.decrease the expected rate of return.d.decrease the risk-free rate of return.e.increase the risk-free rate of re
33、turn.FREQUENCY DISTRIBUTIONa40.Which one of the following takes the shape of a bell curve?a.frequency distributionb.variancec.risk premium graphd.standard deviatione.deviation of returnsVARIANCEe41.Which of the following statements are correct concerning the variance of the annual returns on an inve
34、stment?I.The larger the variance, the more the actual returns tend to differ from the average return.II.The larger the variance, the larger the standard deviation.III.The larger the variance, the greater the risk of the investment.IV.The larger the variance, the higher the expected return.a.I and II
35、I onlyb.II, III, and IV onlyc.I, III, and IV onlyd.I, II, and III onlye.I, II, III, and IVVARIANCEa42.The variance of returns is computed by dividing the sum of the:a.squared deviations by the number of returns minus one.b.average returns by the number of returns minus one.c.average returns by the n
36、umber of returns plus one.d.squared deviations by the average rate of return.e.squared deviations by the number of returns plus one.STANDARD DEVIATIONb43.Which of the following statements concerning the standard deviation are correct?I.The greater the standard deviation, the lower the risk.II.The st
37、andard deviation is a measure of volatility.III.The higher the standard deviation, the less certain the rate of return in any one given year.IV.The higher the standard deviation, the higher the expected return.a.I and III onlyb.II, III, and IV onlyc.I, III, and IV onlyd.I, II, and III onlye.I, II, I
38、II, and IVSTANDARD DEVIATIONa44.The standard deviation on small company stocks:I.is greater than the standard deviation on large company stocks.II.is less than the standard deviation on large company stocks.III.had an average value of about 33 percent for the period 1926 to 2023.IV.had an average va
39、lue of about 20 percent for the period 1926 to 2023.a.I and III onlyb.I and II onlyc.II and III onlyd.II and IV onlye.I and IV onlyARITHMETIC VS. GEOMETRIC AVERAGESb45.Estimates using the arithmetic average will probably tend to _ values over the long-term while estimates using the geometric average
40、 will probably tend to _ values over the short-term.a.overestimate; overestimateb.overestimate; underestimatec.underestimate; overestimated.underestimate; underestimatee.accurately; accuratelyMARKET EFFICIENCYd46.In an efficient market, the price of a security will:a.always rise immediately upon the
41、 release of new information with no further price adjustments related to that information.b.react to new information over a two-day period after which time no further price adjustments related to that information will occur.c.rise sharply when new information is first released and then decline to a
42、new stable level by the following day.d.react immediately to new information with no further price adjustments related to that information.e.be slow to react for the first few hours after new information is released allowing time for that information to be reviewed and analyzed.MARKET EFFICIENCYc47.
43、If the financial markets are efficient, then investors should expect their investments in those markets to:a.earn extraordinary returns on a routine basis.b.generally have positive net present values.c.generally have zero net present values.d.produce arbitrage opportunities on a routine basis.e.prod
44、uce negative returns on a routine basis.MARKET EFFICIENCYd48.Which one of the following statements is correct concerning market efficiency?a.Real asset markets are more efficient than financial markets.b.If a market is efficient, arbitrage opportunities should be common.c.In an efficient market, some market participants will have an advantage over others.d.A firm will generally receive a fair price when it sells shares of stock.e.New information will gradually be reflected in a stocks price to avoid any sudden change in the price