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

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

What is the current price of a telecommunication company's stock if earnings per share are projected to be $2.00 per share and the industry's average PE ratio is $20?

Increased uncertainty resulting from the subprime crisis ________ the required return on investment in equity.

Dishonest corporate accounting procedures would cause stock prices to ________.

In the one-period valuation model,an increase in the required return on investments in equity ________.

The efficient markets hypothesis suggests that investors ________.

The January effect refers to the fact that ________.

Using the Gordon growth model,a stock's price will increase if ________.

The efficient markets hypothesis predicts that stock prices follow a "random walk." The implication of this hypothesis for investing in stocks is ________.

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?