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1 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Corporate Finance, 12e (Ross) Chapter 10 Lessons from Market History 1) Alpha Industries stock sold for $39 a share at the beginning of the year. During the year, the company paid a dividend of $3 a share and then ended the year with a stock price of $37. The change in the stock price is best described as a: A) capital gain. B) positive total dollar return. C) capital loss. D) negative total dollar return. E) negative dividend yield. Answer: C Difficulty: 1 Easy Section: 10.1 Returns Topic: Total return Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 2) The capital gains yield plus the dividend yield on a security is called the: A) variance of returns. B) geometric return. C) average period return. D) current yield. E) total return. Answer: E Difficulty: 1 Easy Section: 10.1 Returns Topic: Total return Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation
2 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 3) A portfolio of small-company common stocks, as used in this course, is best described as the stocks of the firms which: A) represent the smallest twenty percent of the companies listed on the NYSE. B) have gone public within the past five years. C) are too small to be listed on the NYSE. D) are included in the S&P 500 index. E) trade publicly for $5 a share or less. Answer: A Difficulty: 1 Easy Section: 10.2 Holding Period Returns Topic: Asset classes Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 4) Based on the period of 1926 through 2017, ________ have tended to outperform other securities over the long-term. A) U.S. Treasury bills B) large-company stocks C) long-term corporate bonds D) small-company stocks E) long-term government bonds Answer: D Difficulty: 1 Easy Section: 10.2 Holding Period Returns Topic: Historical performance Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 5) Based on the period of 1926 through 2017, U.S. Treasury bills have produced annual rates of return that: A) ranged from −1 percent to +15 percent. B) ranged from −1 percent to +5 percent. C) were negative only during the Great Depression. D) have always been positive. E) never exceeded 6 percent. Answer: D Difficulty: 1 Easy Section: 10.2 Holding Period Returns Topic: Historical performance Bloom's: Understand AACSB: Reflective Thinking
3 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Accessibility: Keyboard Navigation 6) Another term that refers to the average rate of return is the: A) variance. B) standard deviation. C) real return. D) mean. E) histogram. Answer: D Difficulty: 1 Easy Section: 10.3 Return Statistics Topic: Portfolio return Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 7) Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2017? A) U.S. Treasury bills B) Long-term government bonds C) Small-company stocks D) Large-company stocks E) Long-term corporate bonds Answer: A Difficulty: 1 Easy Section: 10.4 Average Stock Returns and Risk-Free Returns Topic: Historical performance Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation
4 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8) On average, for the period 1926 through 2017: 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 excess return on long-term corporate bonds has exceeded the excess return on long-term government bonds. E) the excess return on large-company stocks has exceeded the excess return on small-company stocks. Answer: D Difficulty: 1 Easy Section: 10.4 Average Stock Returns and Risk-Free Returns Topic: Historical performance Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 9) Over the period of 1926 through 2017, the annual rate of return on ________ has been more volatile than the annual rate of return on ________. A) large-company stocks; small-company stocks B) U.S. Treasury bills; small-company stocks 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 Answer: E Difficulty: 1 Easy Section: 10.4 Average Stock Returns and Risk-Free Returns Topic: Historical performance Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation