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Exam 10: Investment Returns and Aggregate Measures of Stock Markets

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Question 21

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The rate of return on a stock considers the price change but not dividend income.

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Question 22

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a. Given the following information concerning three stocks, construct a simple average, a value-weighted average, and a geometric average.        Stock       Price     Shares Outstanding          A          $10        1,000,000          B          $14        3,000,000          C          $21       10,000,000 b. What are averages if each price rises to $11, $17, and $35, respectively? c. What is the percentage increase in each average?

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a. Simple average: ($10+14+21)/3=$15    ...

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Question 23

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Stock indices do not consider taxes on capital gains.

If a stock rose from $10 to $30 over ten years, the annual rate of return

The market consists of the following stocks. Their prices and number of shares are as follows:     Stock         Price   Number of Shares Outstanding       A            $10              100,000       B             20               10,000       C             30              200,000       D             40               50,000 a. The price of Stock C doubles to $60. What is the percentage increase in the market if a S&P 500 type of measure of the market (value-weighted average)is used? b. Repeat question (a)but use a Value Line type of measure of the market (i.e., a geometric average)to determine the percentage increase. c. Suppose the price of stock B doubled instead of stock C. How would the market have fared using the aggregate measures employed in (a)and (b)? Why are your answers different?

Movements in individual stock prices tend to be

The Dow Jones industrial and utility averages include a relatively small number of stocks.

Studies of realized rates of return assume that Dividend income is not reinvested.

Dollar-cost averaging is achieved by periodic, equal dollar investments.

A strategy of averaging down will be profitable if

Studies of investment returns suggest that investors can expect to earn at least 15 percent annually.

Indices of Nasdaq stocks tend to be less volatile than the S&P 500 index.

You bought a stock for $28.29 that paid the following dividends After the third year, you sold the stock for $35. What was the annual rate of return?

Which of the following is the least broad-based measure of stock prices?

The Standard & Poor's 500 stock index illustrates

Dollar cost averaging is

Historical studies of rates of return on large stocks suggest

Comparisons of stock performance should use percentage changes instead of absolute price changes.

The Russell 3000 is a broad-based measure of bond prices.

Holding period returns for greater than a year do not give an accurate measure of the true rate of return.