Studying market history can reward us by demonstrating that:

the greater the potential reward is, the greater the risk & there is a reward for bearing risk.

Dividends are the _______ component of the total return from investing in a stock.

Income

A capital gain on a stock results from ______

an increase in stock price

Dividend yield for a one-year period is equal to the annual dividend amount divided by the ____

beginning stock price

The capital gains yield can be found by finding the difference between the ending stock price and the initial stock price and dividing it by the ________.

initial stock price

Historically, the real return on Treasury bills has been:

quite low

The average return on the stock market can be used to ______.

compare stock returns with the returns on other securities.

Lowest historical risk premium to highest historical risk premium

US Treasury Bills, Long term corporate bonds, large company stocks, small company stocks

The _______ rate of return is the difference between risky returns and risk free returns.

excess

Mona Corporation has a variance of returns of 343, while Scott Company has a variance of returns of 898. Which company’s actual returns vary more from their mean return?

Scott Corporation

The standard deviation is the _______ of the variance.

square root

Variance is measure in ______, while standard deviation is measured in _____.

percent squared, percent

The second lesson from studying capital market history is that risk is:

handsomely rewarded

The year 2008 was:

one of the worst years for stock market investors in US history

A distribution tends to have a smooth shape when the number of observations is _________.

very large

A normal distribution has a _____ shape

symmetrical

The probability of an outcome being 2 standard deviations below the mean in a normal distribution is approximately _______ percent.

2.5

Normally, the excess rate of return is _____.

positive

Probability of an outcome being within one standard deviation of the mean in a normal distribution is approximately ____ percent.

68

The excess return on a risky asset is the difference between the risky return and the _____ rate

risk-free

Probability of an outcome being within 2 standard deviations of the mean in a normal distribution is approximately ____ percent

95

The Ibbotson-Sinquefield data shows that _______.

Long term corporate bonds had less risk or variability than stocks & US T-bills had the lowest risk or variability.

Highest to lowest return based on what our study of capital market history has revealed about risk premiums.

Small company common stock, long term corporate bonds, US Treasury bills

Ways to make money by investing in stocks:

Dividends and capital gains

The Ibbotson-Sinquefield data show that over the long term, _____________.

T-bills, which had the lowest risk, generated the lowest return; small-company stocks had the highest risk level; and small-company stocks generated the highest average return

2 potential ways to make money as a stockholder are through ______ and capital appreciation

dividends

When dealing with the history of capital market returns, an average stock market return is useful because it ______.

simplifies detailed market data & is the best estimate of any one year’s stock market return during the specified period.

The Ibbotson-Sinquefield data presents rates of return from 1925 to recent times for:

Large company stocks & long term US gov bonds.

Arithmetic average rate of return measures the ________.

return in an average year over a given period

The rates of return in the Ibbotson-Sinquefield studies are not adjusted for which of the following?

Inflation & Taxes

Geometric averages are _____ arithmetic averages.

smaller than

The Ibbotson-Sinquefield data presents returns from 1925 to the recent past for:

US T-Bills, large cap stocks and small cap stocks

Highest to lowest return based on what our study of capital market history has revealed about risk premiums

Small company common stock, long term corporate bonds, US Treasury bills

In the Ibbotson-Sinquefield studies, long term corporate bonds have which of the following characteristics?

20 year maturities & high quality

Commonly used to measure inflation

The Consumer Price Index (CPI)

Which are true about the historical equity risk premiums of the countries studied by Dimson, Marsh and Staunton?

Italy had the highest equity risk premium, and Denmark had the lowest equity risk premium.

The total dollar return on a stock is the sum of the ______ and the _____.

Dividends and capital gains

If you are forecasting a few decades in the future you should calculate the expected return using:

Blume’s formula

Average returns can be calculated by:

arithmetic and geometric

The Treasury bills used in the Ibbotson-Sinquefield studies had maturities of _____.

1 month

Percentage returns are more convenient than dollar returns because they ______.

Apply to any amount invested.

The Sharpe ratio measures:

reward to risk