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Multiple Choice Quiz
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1

According to the historical record, risk premiums grow as the risk of an investment decreases.
A)True
B)False
2

The lessons from capital market history are based on the year-to-year returns on stocks and bonds.
A)True
B)False
3

The historical record of stock returns is based on their price appreciation and ignores any dividends received.
A)True
B)False
4

A normal distribution is a symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation.
A)True
B)False
5

An asset that has a beginning price of $125 and a total percent return of 24% must have a total dollar return of $30.
A)True
B)False
6

An investment's return on investment usually has two components, one of which is ___________ which reflects the cash you receive directly while you own the investment.
A)the capital gain
B)the income component
C)your reward for bearing risk
D)your total dollar return
E)your gross return on that investment
7

Which of the following correctly completes this sentence: When calculating your return on investment you should ignore _____________.
A)paper gains which you could have obtained by cashing out
B)losses you avoided by not buying a stock that has since decreased in price
C)dividends that have been declared on the stock you own if you have not yet received the dividend
D)paper capital losses that occur
E)fees you are charged in the process of purchasing the asset in question
8

Suppose your grandmother invested some money in 1925. Based on historical returns from 1925 to 1998, what of the following types of securities would have given her the SECOND highest return?
A)High quality long-term corporate bonds
B)The common stock of small capitalization firms listed on NYSE
C)The common stock of the 500 largest firms in the US
D)US Treasury bills
E)Long-term government bonds
9

Why do long-term government bonds have a risk premium?
A)They are not government guaranteed
B)They are virtually identical to long-term corporate bonds
C)The government cannot easily raise tax money to repay the bonds
D)The long time period to maturity
E)Long-term government bonds don't have a risk premium
10

Which of the following is likely to be associated with the highest level of risk?
A)Long-term corporate bonds
B)US Treasury bills
C)Long-term government bonds
D)Common stock of the largest companies in the US
E)Common stock of the smallest companies listed on NYSE





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