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

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 market participants notice that a variable behaves differently now than in the past,then,according to rational expectations theory,we can expect market participants to

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

Economists have focused more attention on the formation of expectations in recent years.This increase in interest can probably best be explained by the recognition that

The theory of rational expectations,when applied to financial markets,is known as

________ is the field of study that applies concepts from social sciences such as psychology and sociology to help understand the behavior of securities prices.

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

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

In the Gordon growth model,a decrease in the required rate of return on equity

If expectations of the future inflation rate are formed solely on the basis of a weighted average of past inflation rates,then economists would say that expectation formation is

The small-firm effect refers to the

Using the Gordon growth model,if D₁ is $.50,kₑ is 7%,and g is 5%,then the present value of the stock is

In the generalized dividend model,if the expected sales price is in the distant future

Another way to state the efficient markets hypothesis is: in an efficient market

According to rational expectations

Which of the following types of information most likely allows the exploitation of a profit opportunity?

A change in perceived risk of a stock changes

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

Evidence in support of the efficient markets hypothesis includes

Stockholders are residual claimants,meaning that they