Question 1

In an efficient market, stock prices adjust quickly to new public information.

Accepted Answer

A) True 
 B)False  True

Question 2

An efficient market is a market that allocates funds to their most productive use as a result of competition among wealth- maximizing investors.

Accepted Answer

A) True 
 B)False  True

Question 3

Economically rational buyers and sellers use their assessment of an asset's risk and return to determine its value. Relative to this concept, which of the following is true?

Accepted Answer

A)  To a seller the asset's value represents the maximum sale price. 
B)  To a buyer the asset's value represents the minimum price that he or she would pay to acquire it. 
C)  The interaction of buyers and sellers can result in a value that differs from the stock's true value. 
D)  To a buyer the asset's value represents the maximum price that he or she would pay to acquire it. 
A)  To a seller the asset's value represents the maximum sale price. 
B)  To a buyer the asset's value represents the minimum price that he or she would pay to acquire it. 
C)  The interaction of buyers and sellers can result in a value that differs from the stock's true value. 
D)  To a buyer the asset's value represents the maximum price that he or she would pay to acquire it. D

Question 4

If the expected return were above the required return, investors would buy the asset, driving its price up and its expected return down.

Accepted Answer

A) True 
 B)False

Question 5

In an inefficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an implication of the efficient market hypothesis (EMH) for investors?

Accepted Answer

A)  For the vast majority of people public information cannot be used to earn abnormal returns. 
B)  Investors need to press for a greater volume of timely information. 
C)  Effective EMH will always ensure higher levels of dividend for alert investors. 
D)  The perception of a fair game market could be improved by more constraints and deterrents placed on insider dealers. 
A)  For the vast majority of people public information cannot be used to earn abnormal returns. 
B)  Investors need to press for a greater volume of timely information. 
C)  Effective EMH will always ensure higher levels of dividend for alert investors. 
D)  The perception of a fair game market could be improved by more constraints and deterrents placed on insider dealers.

Question 7

Efficient market hypothesis is the theory describing the behavior of an assumed "perfect" market in which securities are typically in equilibrium, security prices fully reflect all public information available and react swiftly to new information, and, because stocks are fairly priced, investors need not waste time looking for mispriced securities.

Accepted Answer

A) True 
 B)False

Question 8

Behavioral finance is a growing body of research that focuses on investor behavior and its impact on investment decisions and stock prices.

Accepted Answer

A) True 
 B)False

Question 9

To a buyer, an asset's value represents the minimum price that he or she would pay to acquire it.

Accepted Answer

A) True 
 B)False

Question 10

According to the efficient market theory,

Accepted Answer

A)  prices of actively traded stocks can only be under- valued in an efficient market. 
B)  prices of actively traded stocks can be under- or over- valued in an efficient market, and bear searching out. 
C)  prices of actively traded stocks do not differ from their true values in an efficient market. 
D)  prices of actively traded stocks can only be over- valued in an efficient market. 
A)  prices of actively traded stocks can only be under- valued in an efficient market. 
B)  prices of actively traded stocks can be under- or over- valued in an efficient market, and bear searching out. 
C)  prices of actively traded stocks do not differ from their true values in an efficient market. 
D)  prices of actively traded stocks can only be over- valued in an efficient market.

Question 11

Which of the following best describes 'strong- form efficiency'?

Accepted Answer

A)  All relevant information, including that which is privately held, is reflected in the share price. 
B)  Share prices fully reflect information available only to certain shareholders. 
C)  Share prices fully reflect all the relevant, publicly available information. 
D)  Share prices fully reflect all information contained in past price movements. 
A)  All relevant information, including that which is privately held, is reflected in the share price. 
B)  Share prices fully reflect information available only to certain shareholders. 
C)  Share prices fully reflect all the relevant, publicly available information. 
D)  Share prices fully reflect all information contained in past price movements.

Question 12

Which two of the following are implications of the efficient market hypothesis (EMH) for companies?

Accepted Answer

A)  Large quantities of new shares can be sold without moving the price. 
B)  Signals from price movements should be taken seriously. 
C)  The timing of security issues must be fine- tuned. 
A)  Large quantities of new shares can be sold without moving the price. 
B)  Signals from price movements should be taken seriously. 
C)  The timing of security issues must be fine- tuned.

Question 13

In an efficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.

Accepted Answer

A) True 
 B)False

Question 14

In an efficient market, the expected return and the required return are equal.

Accepted Answer

A) True 
 B)False

Question 15

Following the theory of the "efficient market hypothesis" all of the following are true EXCEPT

Accepted Answer

A)  securities are typically in equilibrium, meaning they are fairly priced and their expected returns equal their required returns. 
B)  since stocks are fully and fairly price, it follows that investors should not waste their time trying to find and capitalize on miss- priced (under- or over- valued) securities. 
C)  insider trading scandals have proven that stocks are not fully and fairly priced; as a result, it would be worthwhile for investors should spend time searching for mispriced (over- or under- valued) stocks. 
D)  at any point in time, security prices fully reflect all public information available about the firm and its securities, and these prices react swiftly to new information. 
A)  securities are typically in equilibrium, meaning they are fairly priced and their expected returns equal their required returns. 
B)  since stocks are fully and fairly price, it follows that investors should not waste their time trying to find and capitalize on miss- priced (under- or over- valued) securities. 
C)  insider trading scandals have proven that stocks are not fully and fairly priced; as a result, it would be worthwhile for investors should spend time searching for mispriced (over- or under- valued) stocks. 
D)  at any point in time, security prices fully reflect all public information available about the firm and its securities, and these prices react swiftly to new information.

Question 16

If a market is truly efficient, investors should not waste their time trying to find and capitalise on mispriced securities.

Accepted Answer

A) True 
 B)False

Question 17

What is X in the formula X = Share price ? Earnings per share

Accepted Answer

A)  Price- earning ratio 
B)  Dividend cover 
C)  Dividend yield 
D)  Share dividend 
A)  Price- earning ratio 
B)  Dividend cover 
C)  Dividend yield 
D)  Share dividend

Question 18

Which of the following best describes the term 'weak- form efficiency'?

Accepted Answer

A)  Share prices fully reflect all information contained in past price movements. 
B)  Share prices fully reflect all the relevant, publicly available information. 
C)  All relevant information, including that which is privately held, is reflected in the share price. 
D)  Share prices fully reflect information available only to certain shareholders. 
A)  Share prices fully reflect all information contained in past price movements. 
B)  Share prices fully reflect all the relevant, publicly available information. 
C)  All relevant information, including that which is privately held, is reflected in the share price. 
D)  Share prices fully reflect information available only to certain shareholders.

Question 19

Which three of the following accurately describe insider trading?

Accepted Answer

A)  It is likely to be profitable. 
B)  It is trading on privileged information. 
C)  It is any trading in shares of the company by its employees. 
D)  It is illegal. 
A)  It is likely to be profitable. 
B)  It is trading on privileged information. 
C)  It is any trading in shares of the company by its employees. 
D)  It is illegal.

Question 20

If a market is truly efficient, investors should not waste their time trying to find and capitalise on mispriced securities.

Accepted Answer

A) True 
 B)False

Exam 14: Value-Based Management

In an efficient market, stock prices adjust quickly to new public information.

An efficient market is a market that allocates funds to their most productive use as a result of competition among wealth- maximizing investors.

Economically rational buyers and sellers use their assessment of an asset's risk and return to determine its value. Relative to this concept, which of the following is true?

If the expected return were above the required return, investors would buy the asset, driving its price up and its expected return down.

In an inefficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.

Which of the following is an implication of the efficient market hypothesis (EMH) for investors?

Behavioral finance is a growing body of research that focuses on investor behavior and its impact on investment decisions and stock prices.

To a buyer, an asset's value represents the minimum price that he or she would pay to acquire it.

According to the efficient market theory,

Which of the following best describes 'strong- form efficiency'?

Which two of the following are implications of the efficient market hypothesis (EMH) for companies?

In an efficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.

In an efficient market, the expected return and the required return are equal.

Following the theory of the "efficient market hypothesis" all of the following are true EXCEPT

If a market is truly efficient, investors should not waste their time trying to find and capitalise on mispriced securities.

What is X in the formula X = Share price ? Earnings per share

Which of the following best describes the term 'weak- form efficiency'?

Which three of the following accurately describe insider trading?

If a market is truly efficient, investors should not waste their time trying to find and capitalise on mispriced securities.

The Financial World

Project Appraisal: Net Present Value and Internal Rate of Return

Project Appraisal: Cash Flow and Applications

The Decision-Making Process for Investment Appraisal

Project Appraisal: Capital Rationing, Taxation and Inflation

Risk and Project Appraisal

Portfolio Theory

The Capital Asset Pricing Model and Multi-Factor Models

Stock Markets

Raising Equity Capital

Long-Term Debt Finance

Short-Term and Medium-Term Finance

Stock Market Efficiency

Value-Creation Metrics

The Cost of Capital

Valuing Shares

Capital Structure

Dividend Policy

Mergers

Derivatives

Managing Exchange-Rate Risk

Future Value of 1 at Compound Interest

Present Value of 1 at Compound Interest

Present Value of an Annuity of 1 at Compound Interest

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