1. A stock had annual returns of 16 percent, 8 percent, -17 percent, and 21 percent for the past four years. Based on this information, what is the 95 percent probability range of returns for any one given year?    -26.74 to 40.74percent
2. A stock had annual returns of 4.8 percent, -11.6 percent, 18.2 percent, and 7.4 percent over the past four years. Which one of the following best describes the probability that this stock will produce a return of 30percent or more in a single year?    Less than 2.5 percent but more than .5 percent
3. A stock had returns of 14 percent, 13 percent, -10 percent, and 7 percent for the past four years. Which one of the following best describes the probability that this stock will lose no more than 10 percent in any one year?    Greater than 84 percent but less than 97.5 percent.
4. A stock had returns of 4 percent, 11 percent, 16 percent, -6 percent, and -2 percent for the past five years. Based on these returns, what is the approximate probability that this stock will return at least 20 percent in any one given year?    Greater than 2.5 percent but less than 16 percent.
5. A stock has an expected rate of return of 13 percent and a standard deviation of 21 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?    .5 percent
6. A stock has an expected return of 11 percent, the risk-free rate is 5.2 percent, and the market risk premium is 5 percent. What is the stock’s beta?   1.16
7. According to CAPM, the amount of reward an investor receives for bearing the risk of an individual security depends upon the:  market risk premium and the amount of systematic risk inherent in the security.
8. Aimee is the owner of a stock with annual returns of 27 percent, -32 percent, 11 percent, and 23 percent for the past four years. She thinks the stock may be able to achieve a return of 50 percent or more in a single year. What is the probability that your friend is correct?              Greater than 2.5 percent but less than 16 percent.
9. As long as the inflation rate is positive, the real rate of return on a security will be ____ the nominal rate of return.     less than
10. As long as the inflation rate is positive, the real rate of return on a security will be ____ the nominal rate of return.   less than
11. Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately. If the dividend yield remains at its pre-announcement level, then you know the stock price:    decreased proportionately with the dividend decrease.
12. Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately. If the dividend yield remains at its pre-announcement level, then you know the stock price:    decreased proportionately with the dividend decrease.
13. Efficient financial markets fluctuate continuously because:   the markets are continually reacting to new information.
14. If the variability of the returns on large-company stocks were to decrease over the long-term, you would expect which one of the following to occur as a result?   Decrease in the 68 percent probability range of returns
15. Individuals who continually monitor the financial markets seeking mispriced securities:   make the markets increasingly more efficient.
16. Over the past five years, a stock produced returns of 11 percent, 14 percent, 4 percent, -9 percent, and 5 percent. What is the probability that an investor in this stock will not lose more than 10 percent in any one given year?     Greater than 84 percent but less than 97.5 percent.
17. Small-company stocks, as the term is used in the textbook, are best defined as the:  smallest twenty percent of the firms listed on the NYSE.
18. Standard deviation is a measure of which one of the following?    Volatility
19. Suzie owns five different bonds valued at $36,000 and twelve different stocks valued at $82,500 total. Which one of the following terms most applies to Suzie’s investments?   portfolio
20. The _____ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.    risk premium
21. The average compound return earned per year over a multi-year period is called the _____ average return.     Geometric
22. The expected return on a stock computed using economic probabilities is:    a mathematical expectation based on a weighted average and not an actual anticipated outcome.
23. The historical record for the period 1926-2010 supports which one of the following statements?   It is possible for small-company stocks to more than double in value in any one given year.
24. The real rate of return on a stock is approximately equal to the nominal rate of return:  minus the inflation rate.
25. The return earned in an average year over a multi-year period is called the _____ average return.  Arithmetic
26. The reward-to-risk ratio for stock A is less than the reward-to-risk ratio of stock B. Stock A has a beta of 0.82 and stock B has a beta of 1.29. This information implies that:  Either stock A is overpriced or stock B is underpriced or both.
27. Treynor Industries is investing in a new project. The minimum rate of return the firm requires on this project is referred to as the:    cost of capital.
28. What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?    16 percent
29. What was the average rate of inflation over the period of 1926-2010?   between 3.0 and 3.5 percent
30. Which one of the following best defines the variance of an investment’s annual returns over a number of years?    The average squared difference between the actual returns and the arithmetic average return.
31. Which one of the following categories of securities had the highest average return for the period 1926-2010?     small company stocks
32. Which one of the following categories of securities had the lowest average risk premium for the period 1926-2010?   U.S. Treasury bills
33. Which one of the following categories of securities has had the most volatile returns over the period 1926-2010?    small-company stocks
34. Which one of the following events would be included in the expected return on Sussex stock?  This morning, Sussex confirmed that its CEO is retiring at the end of the year as was anticipated.
35. Which one of the following is represented by the slope of the security market line? market risk premium
36. Which one of the following statements best defines the efficient market hypothesis?   All securities in an efficient market are zero net present value investments.
37. Which one of the following statements is correct based on the historical record for the period 1926-2010?     Long-term government bonds had a lower return but a higher standard deviation on average than did long-term corporate bonds.
38. Which one of the following statements is correct concerning a portfolio of 20 securities with multiple states of the economy when both the securities and the economic states have unequal weights?   Given both the unequal weights of the securities and the economic states, an investor might be able to create a portfolio that has an expected standard deviation of zero.
39. Which one of the following statements is correct?    The greater the volatility of returns, the greater the risk premium.
40. Which one of the following will be constant for all securities if the market is efficient and securities are priced fairly?    reward-to-risk ratio
41. You are aware that your neighbor trades stocks based on confidential information he overhears at his workplace. This information is not available to the general public. This neighbor continually brags to you about the profits he earns on these trades. Given this, you would tend to argue that the financial markets are at best _____ form efficient.   Semistrong
42. You are aware that your neighbor trades stocks based on confidential information he overhears at his workplace. This information is not available to the general public. This neighbor continually brags to you about the profits he earns on these trades. Given this, you would tend to argue that the financial markets are at best _____ form efficient.   Semistrong
43. You bought one of Shark Repellant’s 8 percent coupon bonds one year ago for $802. These bonds pay annual payments, have a face value of $1,000, and mature 14 years from now. Suppose you decide to sell your bonds today when the required return on the bonds is 12 percent. The inflation rate over the past year was 3.7 percent. What was your total real return on this investment?     -2.02percent
44. You find a certain stock that had returns of 4 percent, -5 percent, -15 percent, and 16 percent for four of the last five years. The average return of the stock for the past year-year period was 8 percent. What is the standard deviation of the stock’s returns for the 5-year period?   21.22 percent

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