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Fundamentals of Corporate Finance, 4/c/e
Fundamentals of Corporate Finance, 4/e
Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Some Lessons from Capital Market History

Quick Quiz 2

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.



1

You are considering two investments. You note that the return on investment A tends to vary quite widely from its average, definitely more so than does investment B. Based on this, you believe that:
A)A has a higher return volatility than B.
B)A has a lower standard deviation than B.
C)A has a higher inflation premium than B.
D)A has a lower variance than B.
E)A must be one of the 300 largest stocks listed on the TSE, while B must be a small capitalization Canadian stock.
2

Which form(s) of market efficiency is/are generally considered to hold in well-organized markets?
I. Strong form efficiency
II. Semi-strong form efficiency
III. Weak form efficiency
A)III only
B)II only
C)I only
D)II and III only
E)I and II only
3

Over the past 50 years, which of the following investments has provided the smallest average return?
A)Small company stocks
B)Common stocks
C)Government bonds
D)Treasury bills
E)Corporate bonds
4

You discover you can make above normal returns if you buy oil-company stocks just before noon on any given trading day and then sell them immediately before the market closes that same day. Which of the following describes this event?
A)This would not be a violation of market efficiency.
B)This would be a violation of semi-strong form efficiency.
C)This would be a violation of weak form efficiency.
D)This would be a violation of strong form efficiency.
E)This would be a violation of all forms of market efficiency.
5

Over the 1948-1999 period, the nominal risk premium on treasury bills has averaged __________ per year.
A)13.2%
B)9.4%
C)6.0%
D)1.9%
E)0.0%
6

Over the 1948-1999 period, the nominal risk premium on common stocks has averaged _______ per year.
A)13.2%
B)7.2%
C)2.3%
D)1.9%
E)0.0%
7

Examples of potential market inefficiencies include:
I. The January effect
II. The crash of 1987
III. The observed high volatility of small capitalization stock prices.
A)I only
B)II only
C)II and III only
D)I and II only
E)I, II and III only
8

Given the following historical returns, what is the average return?
Year ;1 ;= ;20%; Year ;2 ;= ;-12%; Year ;3 ;= ;16%; Year ;4 ;= ;3%; Year ;5 ;= ;-15%.
A)2.4%
B)20.0%
C)12.0%
D)3.0%
E)2.0%
9

Given the following historical returns, what is the standard deviation?
Year ;1 ;= ;20%; Year ;2 ;= ;-12%; Year ;3 ;= ;16%; Year ;4 ;= ;3%; Year ;5 ;= ;-15%.
A)11.89%
B)12.48%
C)14.18%
D)15.85%
E)16.87%
10

Given the following returns, what is the variance?
Year ;1 ;= ;15%; Year ;2 ;= ;3%; Year ;3 ;= ;-29%; Year ;4 ;= ;-1%.
A)0.0137
B)0.0182
C)0.0347
D)0.0398
E)0.0468




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