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

Monetary economists and financial economists developed ________ theories on expectations formations.

A situation when an asset price differs from its fundamental value is ________.

In the generalized dividend model,the current stock price is the sum of ________.

Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period usually ________.

Stockholders are residual claimants,meaning that they ________.

Describe the Price Earnings Valuation method for stocks.

Stockholders' rights include ________.

The number and availability of discount brokers has grown rapidly since the mid-1970s.The efficient markets hypothesis predicts that people who use discount brokers ________.

Explain the Gordon growth model of stock pricing.Explain how changes in each component affect the current stock price.On what assumptions is the model based?

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

Financial markets quickly eliminate unexploited profit opportunities through changes in ________.

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

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 ________.

Periodic payments of net earnings to shareholders are known as ________.

The advantage of a "buy-and-hold strategy" is that ________.

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

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 ________.

The view that expectations change relatively slowly over time in response to new information is known in economics as ________.

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?