Chapter 10

#1 A portfolio of small-company common stocks is best described as the stocks of the firms which:

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#2 A stock had annual returns of 3 percent, 18 percent, and -24 percent over a three-year period. Based on this information, what is the 68 percent probability range for any one given year?

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#3 A stock had annual returns of 7.63 percent, 9.28 percent, -3.11 percent, and 15.09 percent for the past four years, respectively. What is the real average rate of return for this period if inflation averaged 2.3 percent?

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#4 A stock had returns of 12 percent, 6 percent, 13 percent, -11 percent, and -2 percent over the past five years. What is the geometric average return for this time period?

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#5 As part of an unexpected news announcement, Alpha Co. stated that it is increasing its annual dividend from $1.04 per share to $1.10 per share. What else must the company have also announced if its stock price and total expected return remained constant following this announcement? Assume none of the announcement information was previously expected by the market.

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#6 One year ago, you purchased a stock at a price of $32 a share. Today, you sold the stock and realized a total return of 14.62 percent. Your capital gain was $3.48 a share. What was your dividend yield on this stock?

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#7 One year ago, you purchased a stock at a price of $32.50. The stock pays quarterly dividends of $.40 per share. Today, the stock is worth $34.60 per share. What is the total dollar return per share to date from this investment?

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#8 The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:

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#9 The risk premium is computed by ______ the average return for the investment.

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#10 The standard deviation for a set of stock returns can be calculated as the:

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#11 Which one of the following is a correct ranking of securities based on their volatility over the period of 1926 to 2014? Rank from highest to lowest.

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#12 Which one of the following is a correct statement concerning risk premium?

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#13 Which one of the following statements concerning the standard deviation is correct?

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#14 A portfolio consists of Stocks A and B and has an expected return of 11.6 percent. Stock A has an expected return of 17.8 percent while Stock B is expected to return 8.4 percent. What is the portfolio weight of Stock A?

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#15 A portfolio consists of three stocks. There are 540 shares of Stock A valued at $24.20 share, 310 shares of Stock B valued at $48.10 a share, and 200 shares of Stock C priced at $26.50 a share. Stocks A, B, and C are expected to return 8.3 percent, 16.4 percent, and 11.7 percent, respectively. What is the expected return on this portfolio?

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#16 A portfolio contains two securities and has a beta of 1.08. The first security comprises 54 percent of the portfolio and has a beta of 1.27. What is the beta of the second security?

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#17 According to the capital asset pricing model, the expected return on a security is:

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#18 As we add more diverse securities to a portfolio, the ____ risk of the portfolio will decrease while the _____ risk will not.

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#19 Correlation is expressed as the symbol:

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#20 Standard deviation measures _____ risk while beta measures ____ risk.

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