Question 1

If expected return is less than required return on an asset, rational investors will

Accepted Answer

A)  buy the asset, since price is expected to increase. 
B)  sell the asset, which will drive the price up and cause the expected return to reach the level of the required return. 
C)  sell the asset, which will drive the price down and cause the expected return to reach the level of the required return. 
D)  buy the asset, which will drive the price up and cause expected return to reach the level of the required return. 
A)  buy the asset, since price is expected to increase. 
B)  sell the asset, which will drive the price up and cause the expected return to reach the level of the required return. 
C)  sell the asset, which will drive the price down and cause the expected return to reach the level of the required return. 
D)  buy the asset, which will drive the price up and cause expected return to reach the level of the required return.

Question 2

It has been found that the share values of firms whose shares are traded publicly in an efficient marketplace is

Accepted Answer

A)  generally positively affected by diversification, because of the reduction in risk. 
B)  generally not affected by diversification, unless greater returns are expected. 
C)  generally negatively affected by diversification, because of the increase in risk. 
D)  generally negatively affected by diversification, because of the increase in the required rate of return. 
A)  generally positively affected by diversification, because of the reduction in risk. 
B)  generally not affected by diversification, unless greater returns are expected. 
C)  generally negatively affected by diversification, because of the increase in risk. 
D)  generally negatively affected by diversification, because of the increase in the required rate of return.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Which two options best describe how new information is incorporated into share prices in an efficient market?

Accepted Answer

A)  Rapidly 
B)  Rationally 
C)  Through official channels 
D)  Gradually 
A)  Rapidly 
B)  Rationally 
C)  Through official channels 
D)  Gradually

Question 5

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 all the relevant, publicly available information. 
C)  Share prices fully reflect information available only to certain shareholders. 
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 all the relevant, publicly available information. 
C)  Share prices fully reflect information available only to certain shareholders. 
D)  Share prices fully reflect all information contained in past price movements.

Question 6

Which three of the following are benefits of an efficient market?

Accepted Answer

A)  It encourages share buying. 
B)  It helps to allocate resources. 
C)  Share prices are based on partial information. 
D)  It gives correct signals to company managers. 
A)  It encourages share buying. 
B)  It helps to allocate resources. 
C)  Share prices are based on partial information. 
D)  It gives correct signals to company managers.

Question 7

If the expected return is above the required return on an asset, rational investors will

Accepted Answer

A)  buy the asset, which will drive the price up and cause expected return to reach the level of the required return. 
B)  sell the asset, which will drive the price up and cause the expected return to reach the level of the required return. 
C)  sell the asset, which will drive the price down and cause the expected return to reach the level of the required return. 
D)  sell the asset, since price is expected to decrease. 
A)  buy the asset, which will drive the price up and cause expected return to reach the level of the required return. 
B)  sell the asset, which will drive the price up and cause the expected return to reach the level of the required return. 
C)  sell the asset, which will drive the price down and cause the expected return to reach the level of the required return. 
D)  sell the asset, since price is expected to decrease.

Question 8

If the expected return is less than the required return, investors will sell the asset, because it is not expected to earn a return commensurate with its risk.

Accepted Answer

A) True 
 B)False

Question 9

Which three 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. 
D)  Focus on substance, not on short- term appearances 
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. 
D)  Focus on substance, not on short- term appearances

Question 10

Rational investors purchase a stock when they believe that it is undervalued and sell when they feel that it is overvalued.

Accepted Answer

A) True 
 B)False

If expected return is less than required return on an asset, rational investors will

It has been found that the share values of firms whose shares are traded publicly in an efficient marketplace is

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

Which two options best describe how new information is incorporated into share prices in an efficient market?

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

Which three of the following are benefits of an efficient market?

If the expected return is above the required return on an asset, rational investors will

If the expected return is less than the required return, investors will sell the asset, because it is not expected to earn a return commensurate with its risk.

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

Rational investors purchase a stock when they believe that it is undervalued and sell when they feel that it is overvalued.

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

Filters

Exam 14: Value-Based Management

If expected return is less than required return on an asset, rational investors will

It has been found that the share values of firms whose shares are traded publicly in an efficient marketplace is

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

Which two options best describe how new information is incorporated into share prices in an efficient market?

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

Which three of the following are benefits of an efficient market?

If the expected return is above the required return on an asset, rational investors will

If the expected return is less than the required return, investors will sell the asset, because it is not expected to earn a return commensurate with its risk.

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

Rational investors purchase a stock when they believe that it is undervalued and sell when they feel that it is overvalued.

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

Filters