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

The efficient markets hypothesis indicates that investors

In the one-period valuation model,the value of a share of stock today depends upon

You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gateway's profitability. If you decide to invest in Gateway stock,you can expect to earn

If a market participant believes that a stock price is irrationally high,they may try to borrow stock from brokers to sell in the market and then make a profit by buying the stock back again after the stock falls in price. This practice is called

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

When Happy Feet Corporation announces that their fourth quarter earnings are up 10%,their stock price falls. This is consistent with the efficient markets hypothesis

Using the Gordon growth model,a stock's current price decreases when

Evidence against market efficiency includes

In rational expectations theory,the term "optimal forecast" is essentially synonymous with

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

When we describe stock prices as following a random walk,we mean that future changes in stock prices are

When using rational expectations,forecast errors will,on average,be ________ and ________ be predicted ahead of time.

New information that might lead to a decrease in a stock's price might be

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

Periodic payments of net earnings to shareholders are known as

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?

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

The global financial crisis lead to a decline in stock prices because

If in an efficient market all prices are correct and reflect market fundamentals,which of the following is a FALSE statement?