Question 1

According to rational expectations, ________.

Accepted Answer

A)  expectations of inflation are viewed as being an average of past inflation rates 
B)  expectations of inflation are viewed as being an average of expected future inflation rates 
C)  expectations formation indicates that changes in expectations occur slowly over time as past data change 
D)  expectations will not differ from optimal forecasts that use all available information 
A)  expectations of inflation are viewed as being an average of past inflation rates 
B)  expectations of inflation are viewed as being an average of expected future inflation rates 
C)  expectations formation indicates that changes in expectations occur slowly over time as past data change 
D)  expectations will not differ from optimal forecasts that use all available information

Question 2

The analysts predict that the price of corporation's XYZ stock one year from now will be $120. XYZ announced that is not going to pay dividends next year. You decide that you would be satisfied to earn a 12 percent on the investment on this stock, thus, this stock is worth ________ for you now.

Accepted Answer

A)  $100.20 
B)  $108.80 
C)  $107.14 
D)  $132.00 
A)  $100.20 
B)  $108.80 
C)  $107.14 
D)  $132.00

Question 3

Information plays an important role in asset pricing because it allows the buyer to more accurately judge ________.

Accepted Answer

A)  liquidity 
B)  risk 
C)  capital 
D)  policy 
A)  liquidity 
B)  risk 
C)  capital 
D)  policy

Question 4

In the generalized dividend model, if the expected sales price is in the distant future ________.

Accepted Answer

A)  it does not affect the current stock price 
B)  it is more important than dividends in determining the current stock price 
C)  it is equally important with dividends in determining the current stock price 
D)  it is less important than dividends but still affects the current stock price 
A)  it does not affect the current stock price 
B)  it is more important than dividends in determining the current stock price 
C)  it is equally important with dividends in determining the current stock price 
D)  it is less important than dividends but still affects the current stock price

Question 5

Stockholders are residual claimants, meaning that they ________.

Accepted Answer

A)  have the first priority claim on all of a company's assets 
B)  are liable for all of a company's debts 
C)  will never share in a company's profits 
D)  receive the remaining cash flow after all other claims are paid 
A)  have the first priority claim on all of a company's assets 
B)  are liable for all of a company's debts 
C)  will never share in a company's profits 
D)  receive the remaining cash flow after all other claims are paid

Question 6

Using the Gordon growth formula, if D1 is $2.00, ke is 12 percent or 0.12, and g is 10 percent or 0.10, then the current stock price is ________.

Accepted Answer

A)  $20 
B)  $50 
C)  $100 
D)  $150 
A)  $20 
B)  $50 
C)  $100 
D)  $150

Question 7

What is a recommended strategy for a small investor and how it is associated with the efficient market hypothesis?

Accepted Answer

Students should be able to explain that

Question 8

You believe that a corporation's dividends will grow 5 percent 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 percent required return?

Accepted Answer

Use the Gordon Growt

Question 9

According to rational expectations theory, forecast errors of expectations ________.

Accepted Answer

A)  are more likely to be negative than positive 
B)  are more likely to be positive than negative 
C)  tend to be persistently high or low 
D)  are unpredictable 
A)  are more likely to be negative than positive 
B)  are more likely to be positive than negative 
C)  tend to be persistently high or low 
D)  are unpredictable

Question 10

The subprime financial crisis lead to a decline in stock prices because ________.

Accepted Answer

A)  of a lowered expected dividend growth rate 
B)  of a lowered required return on investment in equity 
C)  higher expected future stock prices 
D)  higher current dividends 
A)  of a lowered expected dividend growth rate 
B)  of a lowered required return on investment in equity 
C)  higher expected future stock prices 
D)  higher current dividends

Question 11

A stock's price will fall if there is ________.

Accepted Answer

A)  a decrease in perceived risk 
B)  an increase in the required rate of return 
C)  an increase in the future sales price 
D)  current dividends are high 
A)  a decrease in perceived risk 
B)  an increase in the required rate of return 
C)  an increase in the future sales price 
D)  current dividends are high

Question 12

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

Accepted Answer

A)  rational 
B)  irrational 
C)  adaptive 
D)  reasonable 
A)  rational 
B)  irrational 
C)  adaptive 
D)  reasonable

Question 13

The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market, ________.

Accepted Answer

A)  it will tend to go unnoticed for some time 
B)  it will be quickly eliminated 
C)  financial analysts are your best source of this information 
D)  prices will reflect the unexploited profit opportunity 
A)  it will tend to go unnoticed for some time 
B)  it will be quickly eliminated 
C)  financial analysts are your best source of this information 
D)  prices will reflect the unexploited profit opportunity

According to rational expectations, ________.

The analysts predict that the price of corporation's XYZ stock one year from now will be $120. XYZ announced that is not going to pay dividends next year. You decide that you would be satisfied to earn a 12 percent on the investment on this stock, thus, this stock is worth ________ for you now.

Information plays an important role in asset pricing because it allows the buyer to more accurately judge ________.

In the generalized dividend model, if the expected sales price is in the distant future ________.

Stockholders are residual claimants, meaning that they ________.

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

What is a recommended strategy for a small investor and how it is associated with the efficient market hypothesis?

You believe that a corporation's dividends will grow 5 percent 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 percent required return?

According to rational expectations theory, forecast errors of expectations ________.

The subprime financial crisis lead to a decline in stock prices because ________.

A stock's price will fall if there is ________.

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

The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market, ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

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

According to rational expectations, ________.

The analysts predict that the price of corporation's XYZ stock one year from now will be $120. XYZ announced that is not going to pay dividends next year. You decide that you would be satisfied to earn a 12 percent on the investment on this stock, thus, this stock is worth ________ for you now.

Information plays an important role in asset pricing because it allows the buyer to more accurately judge ________.

In the generalized dividend model, if the expected sales price is in the distant future ________.

Stockholders are residual claimants, meaning that they ________.

Using the Gordon growth formula, if D1 is $2.00, ke is 12 percent or 0.12, and g is 10 percent or 0.10, then the current stock price is ________.

What is a recommended strategy for a small investor and how it is associated with the efficient market hypothesis?

You believe that a corporation's dividends will grow 5 percent 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 percent required return?

According to rational expectations theory, forecast errors of expectations ________.

The subprime financial crisis lead to a decline in stock prices because ________.

A stock's price will fall if there is ________.

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

The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market, ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

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