## Test-Bank-of-CORPORATE-FINANCE-11TH-EDITION-By-Ross-S.-A.-Westerfield

Chapter 10

1. The average squared difference 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.

2. The standard deviation for a set of stock returns can be calculated as the:

A. positive square root of the average return.

B. average squared 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.

3. A symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the _____ distribution.

A. gamma

B. Poisson

C. bi-modal

D. normal

E. uniform

4. The average compound return earned per year over a multi-year period is called the _____ average return.

A. arithmetic

B. standard

C. variant

D. geometric

E. real

5. The return earned in an average year over a multi-year period is called the _____ average return.

A. arithmetic

B. standard

C. variant

D. geometric

E. real

6. 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 return.

7. 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.

8. A portfolio of small-company common stocks 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 Samp;P 500 index.

E. trade publicly for $5 a share or less.

9. Based on the period of 1926 through 2014, _____ 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

10. Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2014?

A. U.S. Treasury bills

B. long-term government bonds

C. small company stocks

D. large company stocks

E. long-term corporate bonds

11. On average, for the period 1926 through 2014:

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 has 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.

12. Over the period of 1926 through 2014, 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

13. 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.

A. large-company stocks, U.S. Treasury bills, long-term government bonds

B. small-company stocks, long-term corporate bonds, large-company stocks

C. long-term government bonds, long-term corporate bonds, small-company stocks

D. small-company stocks, large-company stocks, long-term corporate bonds

E. long-term corporate bonds, large-company stocks, U.S. Treasury bills

14. Over the period of 1926 to 2014, small company stocks had an average return of ____ percent.

A. 18.8

B. 10.2

C. 17.4

D. 14.6

E. 16.7

15. Over the period of 1926 to 2014, the average rate of inflation was _____ percent.

A. 2.0

B. 2.7

C. 3.0

D. 3.8

E. 4.3

16. The average annual return on long-term corporate bonds for the period of 1926 to 2014 was ________ percent.

A. 3.8

B. 5.8

C. 6.4

D. 7.9

E. 8.4

17. The average annual return on small-company stocks was about _____ percentage points greater than the average annual return on large-company stocks over the period of 1926 to 2014.

A. 3.5

B. 4.5

C. 5.5

D. 6.5

E. 7.5

18. The average risk premium on U.S. Treasury bills over the period of 1926 to 2014 was _____ percent.

A. .0

B. 1.6

C. 2.2

D. 3.1

E. 3.8

19. Which one of the following is a correct statement concerning risk premium?

A. The 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 affected by the volatility of returns.

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

A. subtracting the inflation rate from

B. adding the inflation rate to

C. subtracting the average return on the U.S. Treasury bill from

D. adding the average return on the U.S. Treasury bill to

E. subtracting the average return on long-term government bonds from

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