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Finance Flashcards

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The net present value of an investment represents the difference between the investment’s: cost and its market value
Net present value involves discounting an investment’s: future cash flows
The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to: recoup its initial cost
The average net income of a project divided by the project’s average book value is referred to as the project’s: average accounting return
The internal rate of return is the discount rate that results in a zero net present value for the project
The net present value profile illustrates how the net present value of an investment is affected by which one of the following? discount rate
The possibility that more than one discount rate can cause the net present value of an investment to equal zero is referred to as: multiple rates of return
. Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B? mutually exclusive
Which one of the following can be defined as a benefit-cost ratio? positive net present value
the net present value decreases as the required rate of return increases.
Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities? net present value
Which one of the following statements is correct? if the internal rate of return equals the required return, the net present value will equal zero.
If an investment is producing a return that is equal to the required return, the investment’s net present value will be: zero
Which one of the following indicates that a project should be rejected? Assume the cash flows are normal, i.e., the initial cash flow is negative. profitability index is less than 1
Which one of the following indicators offers the best assurance that a project will produce value for its owners? positive NPV
Which one of the following statements is correct? The payback period ignores the time value of money.
Generally speaking, payback is best used to evaluate which type of projects? low cost, short term
Which one of the following is the primary advantage of payback analysis? ease of use
The payback method of analysis ignores which one of the following? time value of money
Which one of the following methods of analysis ignores the time value of money? payback
Which one of the following methods of analysis has the greatest bias toward short-term projects? payback
Which one of the following methods of analysis ignores cash flows? average accounting return
Which one of the following methods of analysis is most similar to computing the return on assets (ROA)? average accounting return
the average accounting return measures profitability rather than cash flow
Which one of the following analytical methods is based on net income? average accounting return
Which one of the following is most closely related to the net present value profile? internal rate of return
The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following? The investment is mutually exclusive with another investment of a different size.
Which one of the following statements is correct? Assume cash flows are conventional. When the internal rate of return is greater than the required return, the net present value is positive.
Which one of the following is an indicator that an investment is acceptable? Assume cash flows are conventional. . Internal rate of return that exceeds the required return
The modified internal rate of return is specifically designed to address the problems associated with unconventional cash flow
. The reinvestment approach to the modified internal rate of return: compounds all of the cash flows, except for the initial cash flow, to the end of the project.
Which one of the following is specifically designed to compute the rate of return on a project that has a multiple negative cash flows that are interrupted by one or more positive cash flows? Modified internal rate of return
Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive? NPV
You are using a net present value profile to compare Projects A and B, which are mutually exclusive. Which one of the following statements correctly applies to the crossover point between these two? the NPV of project a equals project B but generally doesnt equal zero
Which one of the following will occur when the internal rate of return equals the required return? the profitability index will equal 1
An investment has conventional cash flows and a profitability index of 1.0. Given this, which one of the following must be true? The net present value is equal to zero.
Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5? The firm should increase in value each time it accepts a new project.
If a project with conventional cash flows has a profitability index of 1.0, the project will: have an internal rate of return that equals the required return
The profitability index reflects the value created per dollar: invested
Based on the most recent survey information presented in your textbook, CFOs tend to use which two methods of investment analysis the most frequently? Internal rate of return and net present value
Mary has just been asked to analyze an investment to determine if it is acceptable. Unfortunately, she is not being given sufficient time to analyze the project using various methods. She must select one method of analysis and provide an answer based solely on that method. Which method do you suggest she use in this situation? D. Net present value
You were recently hired by a firm as a project analyst. The owner of the firm is unfamiliar with financial analysis and wants to know only what the expected dollar return is per dollar spent on a given project. Which financial method of analysis will provide the information that the owner requests? D. Profitability index
In which one of the following situations would the payback method be the preferred method of analysis? investment funds availability only for a limited period of time
Which one of the following statements is correct? The payback method is biased toward short-term projects.
Which one of the following indicates that an independent project is definitely acceptable? Profitability index greater than 1.0
What is the net present value of a project with the following cash flows if the discount rate is 15 percent? year 0 -481001 156002 289003 15200 NPV = – $48,100 + $15,600 / 1.15 + $28,900 / 1.152 + $15,200 / 1.153NPV = -$2,687.98
What is the net present value of a project with the following cash flows if the discount rate is 13.6 percent?0 -636001 182002 345003 35900 NPV = -$63,600 + $18,200 / 1.136 + $34,500 / 1.1362 + $35,900 / 1.1363NPV = $3,643.38
What is the net present value of a project that has an initial cost of $42,700 and produces cash inflows of $9,250 a year for 9 years if the discount rate is 14.65 percent? C. $1,992.43NPV = -$42,700 + $9,250 {1 – [1 / (1 + .1465)9]} / .1465 NPV = $1,992.43
Corner Restaurant is considering a project with an initial cost of $211,600. The project will not produce any cash flows for the first three years. Starting in Year 4, the project will produce cash inflows of $151,000 a year for three years. This project is risky, so the firm has assigned it a discount rate of 18.6 percent. What is the project’s net present value? NPV = -$211,600 + $151,000 / 1.1864 + $151,000 / 1.1865 + $151,000 / 1.1866 NPV = -$16,670.67
Empire Industries is considering adding a new product to its lineup. This product is expected to generate sales for four years after which time the product will be discontinued. What is the project’s net present value at a required rate of return of 14.8 percent? NPV = -$62,000 + $16,500 / 1.148 + $23,800 / 1.1482 + $27,100 / 1.1483 + $23,300 / 1.1484 NPV = $1,758.71
What is the net present value of the following set of cash flows at a discount rate of 5 percent? At 15 percent?0 -620001 165002 238003 271004 23300 NPV5% = -$23,600 + $8,200 / 1.05 + $9,100 + 1.052 + $10,600 / 1.053NPV5% = $1,620.17 NPV5% = -$23,600 + $8,200 / 1.15 + $9,100 + 1.152 + $10,600 / 1.153NPV5% = -$2,618.99
Professional Properties is considering remodeling the office building it leases to Heartland Insurance. The remodeling costs are estimated at $2.8 million. If the building is remodeled, Heartland Insurance has agreed to pay an additional $820,000 a year in rent for the next five years. The discount rate is 12.5 percent. What is the benefit of the remodeling project to Professional Properties? NPV = -$2,800,000 + $820,000 {1 – [1 / (1 + .125)5]} / .125 NPV = $119,666.04
A proposed project requires an initial cash outlay of $49,000 for equipment and an additional cash outlay of $18,700 in Year 1 to cover operating costs. During Years 2 through 4, the project will generate cash inflows of $42,500 a year. What is the net present value of this project at a discount rate of 11.6 percent? NPV = -$49,000 + (-$18,700 / 1.116) + $42,500 / 1.1162 + $42,500 / 1.1163 + $42,500 / 1.1164 NPV = $26,343.72
Molly is considering a project with cash inflows of $811, $924, $638, and $510 over the next four years, respectively. The relevant discount rate is 11.2 percent. What is the net present value of this project if it the start-up cost is $2,700? NPV = -$2,700 + $811 / 1.112 + $924 / 1.1122 + $638 / 1.1123 + $510 / 1.1124NPV = -$425.91
Charles Henri is considering investing $37,800 in a project that is expected to provide him with cash inflows of $11,600 at the end of each of the first two years and $20,000 at the end of the third year. What is the project’s NPV at a discount rate of 0 percent? At 5 percent? At 10 percent? $5,400; $1,045.91; -$2,641.47NPV0% = -$37,800 + $11,600 / 1.0 + $11,600 / 1.02 + $20,000 / 1.03NPV0% = $5,400 NPV5% = -$37,800 + $11,600 / 1.05 + $11,600 / 1.052 + $20,000 / 1.053NPV5% = $1,045.91 NPV10% = -$37,800 + $11,600 / 1.10 + $11,600 / 1.102 + $20,000 / 1.103NPV10% = -$2,641.47
Joe and Rich are both considering investing in a project that costs $25,500 and is expected to produce cash inflows of $15,800 in Year 1 and $15,300 in Year 2. Joe has a required return of 8.5 percent but Rich demands a return of 12.5 percent. Who, if either, should accept this project? . Both Joe and Rich
. You are making an investment of $110,000 and require a rate of return of14.6 percent. You expect to receive $48,000 in the first year, $52,500 in the second year, and $55,000 in the third year. There will be a cash outflow of $900 in the fourth year to close out the investment. What is the net present value of this investment? NPV = -$110,000 + $48,000 / 1.146 + $52,500 / 1.1462 + $55,000 / 1.1463 + (-$900 / 1.1464) NPV = $7,881.55
What is the net present value of the following cash flows if the relevant discount rate is 11.4 percent?0 -324001 106202 158003 -31104 26600 NPV = -$32,400 + $10,620 / 1.114 + $15,800 / 1.1142 + (-$3,110 / 1.1143) + $26,600 / 1.1144 NPV = $4,887.26
The Golden Goose is considering a project with an initial cost of $46,700. The project will produce cash inflows of $10,000 a year for the first two years and $12,000 a year for the following three years. What is the payback period? 4.23 yearsPayback = 4 + ($46,700 -10,000 -10,000 -12,000 -12,000)/$12,000 = 4.23 years
Today, Sweet Snacks is investing $491,000 in a new oven. As a result, the company expects its cash flows to increase by $64,000 a year for the next two years and by $98,000 a year for the following three years. How long must the firm wait until it recovers all of its initial investment? The project never pays back.The project never pays back because the total cash inflow is only $422,000.
Greenbriar Cotton Mill is spending $284,000 to update its facility. The company estimates that this investment will improve its cash inflows by $50,500 a year for 8 years. What is the payback period? Payback = $284,000/$50,500 = 5.62 years
. EKG, Inc. is considering a new project that will require an initial cash investment of $419,000. The project will produce no cash flows for the first two years. The projected cash flows for Years 3 through 7 are $69,000, $98,000, $109,000, $145,000, and $165,000, respectively. How long will it take the firm to recover its initial investment in this project? Payback = 5 + ($419,000 -0 -0 -69,000 -98,000 -109,000)/$145,000 = 5.99 years
China Importers would like to spend $215,000 to expand its warehouse. However, the company has a loan outstanding that must be repaid in 2.5 years and thus will need the $215,000 at that time. The warehouse expansion project is expected to increase the cash inflows by $60,000 in the first year, $140,000 in the second year, and $150,000 a year for the following 2 years. Should the firm expand at this time? Why or why not? Yes; because the money will be recovered in 2.10 yearsPayback = 2 + ($215,000 -60,000 -140,000)/$150,000 = 2.10 years Yes, the company should accept the expansion project because it pays back within the required 2.5 years.
Services United is considering a new project that requires an initial cash investment of $26,000. The project will generate cash inflows of $2,500, $11,700, $13,500, and $10,000 over each of the next four years, respectively. How long will it take to recover the initial investment? Payback = 2 + ($26,000 -2,500 -11,700)/$13,500 = 2.87 years
Delta Mu Delta is considering purchasing some new equipment costing $393,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. Projected net income for the four years is $16,900, $25,300, $27,700, and $18,400. What is the average accounting rate of return? AAR = [($16,900 + 25,300 + 27,700 + 18,400)/4]/[($393,000 + 0)/2] = .1123, or 11.23 percent
Auto Detailers is buying some new equipment at a cost of $188,900. This equipment will be depreciated on a straight-line basis to a zero book value its eight-year life. The equipment is expected to generate net income of $11,000 a year for the first four years and $24,000 a year for the last four years. What is the average accounting rate of return? [(4 ×$11,000) + (4 ×$24,000)] / 8}/{($188,900 + 0)/2} = .1853, or 18.53 percent
Woodcrafters requires an average accounting return (AAR) of at least 17.5 percent on all fixed asset purchases. Currently, it is considering some new equipment costing $169,700. This equipment will have a four-year life over which time it will be depreciated on a straight-line basis to a zero book value. The annual net income from this equipment is estimated at $7,100, $13,300, $18,600, and $19,200 for the four years. Should this purchase occur based on the accounting rate of return? Why or why not? AAR = [($7,100 + 13,300 + 18,600 + 19,200)/4]/[($169,700 + 0)/2] = .1715, or 17.15 percent Because the AAR is less than the required rate, the equipment should not be purchased.
. Any changes to a firm’s projected future cash flows that are caused by adding a new project are referred to as: incremental cash flows.
. Which one of the following principles refers to the assumption that a project will be evaluated based on its incremental cash flows? Stand-alone principle
. A cost that should be ignored when evaluating a project because that cost has already been incurred and cannot be recouped is referred to as a(n): sunk cost.
Which one of the following terms refers to the best option that was foregone when a particular investment is selected? Opportunity cost
Which one of the following terms is most commonly used to describe the cash flows of a new project that are simply an offset of reduced cash flows for a current project? Erosion
pro forma financial statement is a financial statement that: projects future years’ operating results.
. The amount by which a firm’s tax bill is reduced as a result of the depreciation expense is referred to as the depreciation: tax shield
Which one of the following refers to a method of increasing the rate at which an asset is depreciated? Accelerated cost recovery system
Forecasting risk is best defined as: estimation risk.
. Jamie is analyzing the estimated net present value of a project under various conditions by revising the sales quantity, sales price, and the cost estimates. The type of analysis that Jamie is doing is best described as: scenario analysis
Kate is analyzing a proposed project to determine how changes in the sales quantity would affect the project’s net present value. What type of analysis is being conducted? Sensitivity analysis
The opportunities that a manager has to modify a project once the project has started are called: managerial options.
Contingency planning focuses on the: managerial options implicit in a project.
Which one of the following refers to the option to expand into related businesses in the future Strategic option
Kyle Electric has three positive net present value opportunities. Unfortunately, the firm has not been able to find financing for any of these projects. Which one of the following terms best fits the situation facing the firm? capital rationing
Northern Companies has three separate divisions. Each year, the company determines the amount it can afford to spend in total for capital expenditures and then allocates one-third of that amount to each division. This allocation process is called: soft rationing.
Dismal Outlook is unable to obtain financing for any new projects under any circumstances. This company is faced with: hard rationing.
The Shoe Box is considering adding a new line of winter footwear to its product lineup. When analyzing the viability of this addition, the company should include all of the following in its analysis with the exception of: the research and development costs to produce the current winter footwear samples.
Lake City Plastics currently produces plastic plates and silverware. The company is considering expanding its product offerings to include plastic serving trays. All of the following are relevant costs to this project with the exception of: a percentage of the current operating overhead.
The Corner Market has decided to expand its retail store by building on a vacant lot it currently owns. This lot was purchased four years ago at a cost of $299,000, which the firm paid in cash. To date, the firm has spent another $38,000 on land improvements, all of which was also paid in cash. Today, the lot has a market value of $329,000. What value should be included in the analysis of the expansion project for the cost of the land? The current market value of the land
Weston Steel purchased a new coal furnace six years ago at a cost of $2.2 million. Last year, the government changed the emission requirements and this furnace cannot meet those standards. Thus, the company can no longer use the furnace, nor has it been able to locate anyone willing to purchase the furnace. Given the current situation, the furnace is best described as which type of cost? Sunk
Valley Forge and Metal purchased a truck five years ago for local deliveries. Which one of the following costs related to this truck is the best example of a sunk cost? Assume the truck has a usable life of five years. Money spent last month repairing a damaged front fender
CrossTown Builders is considering remodeling an old building it currently owns. The building was purchased ten years ago for $1.2 million. Over the past ten years, the firm rented out the building and used the rent to pay off the mortgage. The building is now owned free and clear and has a current market value of $1.9 million. The company is considering remodeling the building into industrial-type apartments at an estimated cost of $1.6 million. The estimated present value of the future income from these apartments is $4.1 million. Which one of the following defines the opportunity cost of the remodeling project? Current market value of the building
24. Bruce Moneybags owns several restaurants and hotels near a local interstate. One restaurant, Beef and More, originally cost $1.8 million, is currently fully paid for, but needs modernized. Bruce is trying to decide whether to accept an offer and sell Beef and More, as is, for the offer price of $1.1 million or renovate the restaurant himself. The projected renovation cost is $1.3 million. The restaurant would need to be shut down completely during the renovation which would cause an aftertax net loss of $90,000 in today’s dollars. The estimated present value of the cash inflows from the renovated restaurant is $3.2 million. When analyzing the renovation project, what cost, if any, should be included for the current restaurant? . $1.1 million
5. Flo is considering three mutually exclusive options for the additional space she plans to add to her specialty women’s store. The cost of the expansion will be $148,000. She can use this additional space to add children’s clothing, an exclusive gifts department, or a home décor section. She estimates the present value of the cash inflows from these projects are $121,000 for children’s clothing, $178,000 for exclusive gifts, and $145,000 for decorator items. Which option(s), if any, should she accept? Exclusive gifts only
Ed owns a store that caters primarily to men. Each of the answer options represents an item related to a planned store expansion. Each of these items should be included in the expansion analysis with the exception of the cost: of the blueprints that have been drawn of the expansion area.
Thrill Rides is considering adding a new roller coaster to its amusement park. The addition is expected to increase its overall ticket sales. In particular, the company expects to sell more tickets for its current roller coaster and experience extremely high demand for its new coaster. Sales for its boat ride are expected to decline but food and beverage sales are expected to increase significantly. All of the following are side effects associated with the new roller coaster with the exception of the: ticket sales for the new coaster.
The analysis of a new project should exclude: sunk costs
The net working capital invested in a project is generally: recouped at the end of the project.
A proposed project will increase a firm’s accounts payables. This increase is generally: . a cash inflow at Time zero and a cash outflow at the end of the project.
Which of the following create cash inflows from net working capital? . Increase in accounts payable and decrease in inventory
The pro forma income statements for a proposed investment should include all of the following except: changes in net working capital.
Firm A uses straight-line depreciation. Firm B uses MACRS depreciation. Both firms bought $75,000 worth of equipment last year that has a tax life of 5 years. The 5-year MACRS percentage rates, starting with Year 1, are: 20, 32, 19.2, 11.52, 11.52, and 5.76. Both firms have a marginal tax rate of 34 percent and identical operating cash flows except for the depreciation effects. Given this, you know the: operating cash flow of Firm A is greater than that of Firm B for Year 3.
Assume an all-equity firm has positive net earnings. The operating cash flow of this firm: increases when the tax rate decreases.
The operating cash flows of a project: include erosion effects.
The tax shield approach to computing the operating cash flow, given a tax-paying firm: recognizes that depreciation creates a cash inflow.
Which one of the following will increase the operating cash flow as computed using the tax shield approach? Decrease in fixed costs
Scenario analysis is best described as the determination of the: reasonable range of project outcomes
Which one of the following is a correct value to use if you are conducting a best-case scenario analysis? Lowest expected value for fixed costs
. Scenario analysis asks questions such as: What is the best outcome that should reasonably be expected?
Scenario analysis helps determine the reasonable range of expectations for a project’s anticipated outcome
Sensitivity analysis helps identify the variable within a project that presents the greatest forecasting risk
Turner Industries started a new project three months ago. Sales arising from this project are significantly less than anticipated. Given this, which one of the following is management most apt to implement? Option to abandon
Ignoring the option to wait may underestimate the net present value of a project.
45. Which one of these has the least potential to increase the net present value of a proposed investment? Assume the project has a positive net present value in at least one set of circumstances. Option to discontinue a project at the end of its intended life
The ability to delay an investment: is valuable provided there are conditions under which the investment will have a positive net present value.
. Nu Tek is comprised of four separate operating divisions. For this year, the firm has decided to allocate capital funds using a soft rationing approach. Which one of the following applies to this situation? Division managers should expect to be treated equally, at least initially, in the capital distribution process.
When a firm faces hard rationing,: . there will be no available funds for capital expenditures
. The Green Tomato purchased a parcel of land six years ago for $389,900. At that time, the firm invested $128,000 grading the site so that it would be usable. Since the firm wasn’t ready to use the site itself at that time, it decided to lease the land for $48,000 a year. The Green Tomato is now considering building a hotel on the site as the rental lease is expiring. The current value of the land is $415,000. The firm has no loans or mortgages secured by the property. What value should be included in the initial cost of the hotel project for the use of this land? $415,000
Six years ago, China Exporters paid cash for a new packaging machine that cost $347,000. Three years ago, the firm spent $14,300 on repairs and modifications to the machine. The machine is now fully depreciated and has just sat idly in a back corner of the shop for the past seven months. The estimated value of the machine today is $157,500. The firm is considering using this machine in a new project. If it does so, what value should be assigned to this machine and included in the initial costs of the new project? $157,500
The Tattle Teller has a printing press sitting idly in its back room. The press has no market value to another printer because the machine utilizes old technology. The firm could get $480 for the press as scrap metal. The press is six years old and originally cost $174,000. The current book value is $3,570. The president of the firm is considering a new project and feels he can use this press for that project. What value, if any, should be assigned to the press as an initial cost of the new project? 480
. Custom Tailored Shirts is a specialty retailer offering T-shirts, sweatshirts, and caps. Its most recent annual sales consisted of $21,000 of T-shirts, $18,000 of sweatshirts, and $2,900 of caps. The company is adding polo shirts to the lineup and projects that this addition will result in sales next year of $18,000 of T-shirts, $16,000 of sweatshirts, $11,500 of Polo shirts, and $2,100 of caps. What sales amount should be used when evaluating the Polo shirt project? $5,700
Green Woods sells specialty equipment for mountain climbers. Its sales for last year included $387,000 of tents and $718,000 of climbing gear. For next year, management has decided to sell specialty sleeping bags also. As a result of this change, sales projections for next year are $411,000 of tents, $806,000 of climbing gear, and $128,000 of sleeping bags. How much of next year’s sales are derived from the side effects of adding the new product to its sales offerings? $112,000
Floral Shoppes has a new project in mind that will increase accounts receivable by $19,000, decrease accounts payable by $4,000, increase fixed assets by $27,000, and decrease inventory by $2,000. What is the amount the firm should use as the initial cash flow attributable to net working capital when it analyzes this project? -$21,000
A nine-year project is expected to generate annual revenues of $137,800, variable costs of $82,600, and fixed costs of $11,000. The annual depreciation is $23,500 and the tax rate is 34 percent. What is the annual operating cash flow? Operating cash flow = ($137,800 -82,600 -11,000) x (1 -.34) + ($23,500 x .34) = $37,162
A debt-free firm has net income of $107,400, taxes of $38,700, and depreciation of $19,300. What is the operating cash flow? Operating cash flow = $107,400 + $19,300 = $126,700
. Rock Haven has a proposed project that will generate sales of 1,840 units annually at a selling price of $31 each. The fixed costs are $13,400 and the variable costs per unit are $7.47. The project requires $32,000 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. The salvage value of the fixed assets is $8,500 and the tax rate is 35 percent. What is the operating cash flow for Year 4? OCF4 = {[1,840 x ($31 -7.47] – $13,400} x {1 -.35} + {$32,000/4 x .35} = $22,231.88
On a particular risky investment, investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent. What is this excess return called? Risk premium
The variance is the average squared difference between which of the following? A. Actual return and average return
3. Which one of the following is the positive square root of the variance? Standard deviation
Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation? Normal distribution
Which one of the following is defined as the average compound return earned per year over a multiyear period? Geometric average return
Which one of the following best describes an arithmetic average return? Return earned in an average year over a multiyear period
An efficient capital market is best defined as a market in which security prices reflect which one of the following? All available information
Which one of the following is the hypothesis that securities markets are efficient? Efficient markets hypothesis
Which one of the following combinations will always result in an increased dividend yield? Decrease in the stock price combined with a higher dividend amount
Which one of the following could cause the total return on an investment to be a negative rate? Stock price that declines over the investment period
Which one of the following statements is correct concerning both the dollar return and the percentage return on a stock investment? Without the size of an investment, the dollar return has less value than the percentage return.
12. Which answer creates a false sentence? Percentage returns: are difficult to compute.
One year ago, you purchased 600 shares of a stock. This morning you sold those shares and realized a total return of 3.1 percent. Given this information, you know for sure the: sum of the dividend yield and the capital gains yield is 3.1 percent.
The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield and reported in your textbook, are based on the: stocks of the 500 companies included in the S&P 500 index
Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns? Small-company stocks
. Over the period of 1926-2014: long-term government bonds underperformed long-term corporate bonds.
Over the period of 1926-2014: the risk premium on stocks exceeded the risk premium on bonds.
The rate of return on which one of the following has a risk premium of 0%? . U.S. Treasury bills
Which one of the following had a zero standard deviation of returns for the period of 1926-2014? All of the listed security types had a standard deviation of returns in excess of zero percent.
Which one of the following categories has the widest frequency distribution of returns for the period 1926-2014? small company stocks

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