Exam 7: The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

Using the Gordon growth formula,if D₁ is $2.00,k_e is 12% or 0.12,and g is 10% or 0.10,then the current stock price is

Stockholders are residual claimants,meaning that they

In the one-period valuation model,an increase in the required return on investments in equity

You have observed that the forecasts of an investment advisor consistently outperform the other reported forecasts.The efficient markets hypothesis says that future forecasts by this advisor

The number and availability of discount brokers has grown rapidly since the mid-1970s.The efficient markets hypothesis predicts that people who use discount brokers

If a forecast made using all available information is not perfectly accurate,then it is

Periodic payments of net earnings to shareholders are known as

In the Gordon growth model,a decrease in the required rate of return on equity

If the optimal forecast of the return on a security exceeds the equilibrium return,then

According to the efficient markets hypothesis,purchasing the reports of financial analysts

You believe that a corporation's dividends will grow 5% on average into the foreseeable future.If the company's last dividend payment was $5 what should be the current price of the stock assuming a 12% required return?

Rules used to predict movements in stock prices based on past patterns are,according to the efficient markets hypothesis,

________ and ________ may provide an explanation for stock market bubbles.

Tests used to rate the performance of rules developed in technical analysis conclude that technical analysis

Rational expectations forecast errors will on average be ________ and therefore ________ be predicted ahead of time.

The efficient markets hypothesis indicates that investors

Another way to state the efficient markets condition is: in an efficient market,

Using the one-period valuation model,assuming a year-end dividend of $1.00,an expected sales price of $100,and a required rate of return of 5%,the current price of the stock would be

If a forecast is made using all available information,then economists say that the expectation formation is

In a one-period valuation model,a decrease in the required return on investments in equity causes a(n)________ in the ________ price of a stock.