7.Over the past 76 years, which of the following investments has been the least risky?

A) Small company stocks

B) Common stocks
C) Treasury bills
D) Treasury bonds
E) Corporate bonds
Answer: C

8. You track the liquidity of companies and find that you can consistently earn unusually high
returns by purchasing the shares of firms whose stock price falls below the cash value per share
as indicated on the balance sheet. Which of the following describes this strategy?
A) This would not be a violation of market efficiency.
B) This would be a violation of weak form efficiency.
C) This would be a violation of semi-strong form efficiency.
D) This would be a violation of strong form efficiency.
E) This would be a violation of all forms of market efficiency.
Answer: C

9. Last year you purchased 1,000 shares of Sun Microsystems stock for $15 per share. According to
today's quote in The Wall Street Journal, the stock is currently selling for $3 per share. The stock
pays no dividends. Your return on this investment is comprised of _____________.
A) retained earnings and dividend yields
B) an income return and a capital gains return
C) a real return only
D) a capital gains return only
E) there is no return, since you lost money on this investment
Answer: D

10. Which of the following is generally considered to represent the risk-free return?
A) Common stocks
B) Small stocks
C) Long-term government bonds
D) Long-term corporate bonds
E) Treasury bills
Answer: E

11. You purchased a bond for $870 one year ago. Today, you receive your only interest payment for
the year of $70. The bond can currently be sold for $925. What is your total percentage return on
investment? Ignore tax effects.
A) 6.3%
B) 8.1%
C) 14.4%
D) 16.5%
E) 20.8%
Answer: C

12. You purchased 500 shares of preferred stock on January 1, 2002, for $85 per share. The stock
pays an annual dividend of $12 per share. On December 31, 2002, the market price is $91 per
share. What is your total dollar return for the year?
A) $ 3,000
B) $ 4,500
 C) $ 6,000
D) $ 9,000
E) $12,000
Answer: D
Response: 500 ($91 - 85 + 12) = $9,000

13. You purchased a bond on January 1, 2002, for $1,065. The bond has a $1,000 face value, a 10%
annual coupon, and can be sold for $975 on December 31, 2002. What is your percentage return
on investment for the year?
A) –4.1%
B) 0.9%
C) 4.6%
D) 8.3%
E) 12.5%
Answer: B
Response: R = [($975 - 1,065) / 1,065] + (100 / 1,065) = .0094