Studies Analyzing the Historical Returns Earned by Common Stock Investors

question 76

Multiple Choice

Studies analyzing the historical returns earned by common stock investors have found that the returns from average risk common stock investments over the years have averaged (arithmetically) percentage points than the returns on Treasury bills.

• A)6 to 8, higher
• B)1 to 2, lower
• C)3 to 4, higher
• D)8 to 9, higher

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Definitions:

EBIT

Excluding interest and tax payments, Earnings Before Interest and Taxes provides an assessment of a firm's economic performance.

Leverage

The use of borrowed money (debt) to amplify the potential return on investment.

EAT

Earnings After Tax, which refers to the net profit a company makes after deducting all its costs, including taxes.

Gross Margin

The difference between revenue and the cost of goods sold, divided by revenue, expressed as a percentage.