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

What is the current price of a telecommunication company's stock if the current dividend is $0.80, the expected constant growth rate in dividends is 5% and the required return is 10%?

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

The analysts predict that the price of corporation's XYZ stock one year from now will be $20. XYZ announced that is not going to pay dividends next year. You decide that you would be satisfied to earn a 10 percent on the investment on this stock, thus, this stock is worth ________ for you now.

Stockholders' rights include ________.

In the generalized dividend model, a future sales price far in the future does not affect the current stock price because ________.

A monetary expansion ________ stock prices due to a decrease in the ________ and an increase in the ________, everything else held constant.

If expectations are formed adaptively, then people ________.

Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10 percent, the current price of the stock would be ________.

The efficient markets hypothesis indicates that investors ________.

For small investors, the best way to pursue a "buy and hold" strategy is to ________.

A stockholder's ownership of a company's stock gives her the right to ________.

Suppose Barbara looks out in the morning and sees a clear sky so decides that a picnic for lunch is a good idea. Last night the weather forecast included a 100 percent chance of rain by midday but Barbara did not watch the local news program. Is Barbara's prediction of good weather at lunch time rational? Why or why not?

Economists have focused more attention on the formation of expectations in recent years. This increase in interest can probably best be explained by the recognition that ________.

Stockholders' rights include ________.

The value of any investment is found by computing the ________.

Common stock is the principal way that corporations raise ________.

In asset markets, an asset's price is ________.

Using the Gordon growth formula, if D₁ is $1.00, k_e is 10 percent or 0.10, and g is 5 percent or 0.05, then the current stock price is ________.

Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club. Should you act on this information? Why or why not?

Dishonest corporate accounting procedures would cause stock prices to ________.