Question 1

The value of any investment is found by computing the

Accepted Answer

A) present value of all future sales. 
B) present value of all future liabilities. 
C) future value of all future expenses. 
D) present value of all future cash flows. 
A) present value of all future sales. 
B) present value of all future liabilities. 
C) future value of all future expenses. 
D) present value of all future cash flows.

Question 2

If expectations are formed adaptively,then people

Accepted Answer

A) use more information than just past data on a single variable to form their expectations of that variable. 
B) often change their expectations quickly when faced with new information. 
C) use only the information from past data on a single variable to form their expectations of that variable. 
D) never change their expectations once they have been made. 
A) use more information than just past data on a single variable to form their expectations of that variable. 
B) often change their expectations quickly when faced with new information. 
C) use only the information from past data on a single variable to form their expectations of that variable. 
D) never change their expectations once they have been made.

Question 3

Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club.Should you act on this information? Why or why not?

Accepted Answer

No,if this informati

Question 4

Information plays an important role in asset pricing because it allows the buyer to more accurately judge

Accepted Answer

A) liquidity. 
B) risk. 
C) capital. 
D) policy. 
A) liquidity. 
B) risk. 
C) capital. 
D) policy.

Question 5

Periodic payments of net earnings to shareholders are known as

Accepted Answer

A) capital gains. 
B) dividends. 
C) profits. 
D) interest. 
A) capital gains. 
B) dividends. 
C) profits. 
D) interest.

Question 6

For small investors,the best way to pursue a "buy and hold" strategy is to

Accepted Answer

A) buy and sell individual stocks frequently. 
B) buy no-load mutual funds with high management fees. 
C) buy no-load mutual funds with low management fees. 
D) buy load mutual funds. 
A) buy and sell individual stocks frequently. 
B) buy no-load mutual funds with high management fees. 
C) buy no-load mutual funds with low management fees. 
D) buy load mutual funds.

Question 7

If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%,what should happen to the price of the corporation's stock if the efficient markets hypothesis holds,everything else held constant?

Accepted Answer

The stock's price should fall.The price

Question 8

The efficient markets hypothesis indicates that investors

Accepted Answer

A) can use the advice of technical analysts to outperform the market. 
B) do better on average if they adopt a "buy and hold" strategy. 
C) let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy. 
D) do better if they purchase loaded mutual funds. 
A) can use the advice of technical analysts to outperform the market. 
B) do better on average if they adopt a "buy and hold" strategy. 
C) let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy. 
D) do better if they purchase loaded mutual funds.

Question 9

People have a strong incentive to form rational expectations because

Accepted Answer

A) they are guaranteed of success in the stock market. 
B) it is costly not to do so. 
C) it is costly to do so. 
D) everyone wants to be rational. 
A) they are guaranteed of success in the stock market. 
B) it is costly not to do so. 
C) it is costly to do so. 
D) everyone wants to be rational.

Question 10

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% 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?

Accepted Answer

No,this prediction is not using rational

Question 11

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

Accepted Answer

A) a "churning strategy" of buying and selling often to catch market swings. 
B) turning over your stock portfolio each month,selecting stocks by throwing darts at the stock page. 
C) a "buy and hold strategy" of holding stocks to avoid brokerage commissions. 
D) following the advice of technical analysts. 
A) a "churning strategy" of buying and selling often to catch market swings. 
B) turning over your stock portfolio each month,selecting stocks by throwing darts at the stock page. 
C) a "buy and hold strategy" of holding stocks to avoid brokerage commissions. 
D) following the advice of technical analysts.

Question 12

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

Accepted Answer

A) the actual value of the future dividend stream. 
B) the present value of the future dividend stream. 
C) the present value of the future dividend stream plus the actual future sales price. 
D) the present value of the future sales price. 
A) the actual value of the future dividend stream. 
B) the present value of the future dividend stream. 
C) the present value of the future dividend stream plus the actual future sales price. 
D) the present value of the future sales price.

Question 13

Using the Gordon growth formula,if D₁ is $2.00,kₑ is 12% or 0.12,and g is 10% or 0.10,then the current stock price is

Accepted Answer

A) $20. 
B) $50. 
C) $100. 
D) $150. 
A) $20. 
B) $50. 
C) $100. 
D) $150.

Question 14

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

Accepted Answer

A) reduces;future sales price;expected rate of return 
B) reduces;current dividend;expected rate of return 
C) increases;required rate of return;future sales price 
D) increases;required rate of return;dividend growth rate 
A) reduces;future sales price;expected rate of return 
B) reduces;current dividend;expected rate of return 
C) increases;required rate of return;future sales price 
D) increases;required rate of return;dividend growth rate

Question 15

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

Accepted Answer

A) the dividend growth rate increases. 
B) the growth rate of dividends falls. 
C) the required rate of return on equity rises. 
D) the expected sales price rises. 
A) the dividend growth rate increases. 
B) the growth rate of dividends falls. 
C) the required rate of return on equity rises. 
D) the expected sales price rises.

Question 16

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

Accepted Answer

A) $110.00. 
B) $101.00. 
C) $100.00. 
D) $96.19. 
A) $110.00. 
B) $101.00. 
C) $100.00. 
D) $96.19.

Question 17

The January effect refers to the fact that

Accepted Answer

A) most stock market crashes have occurred in January. 
B) stock prices tend to fall in January. 
C) stock prices have historically experienced abnormal price increases in January. 
D) the football team winning the Super Bowl accurately predicts the behavior of the stock market for the next year. 
A) most stock market crashes have occurred in January. 
B) stock prices tend to fall in January. 
C) stock prices have historically experienced abnormal price increases in January. 
D) the football team winning the Super Bowl accurately predicts the behavior of the stock market for the next year.

Question 18

A stock's price will fall if there is

Accepted Answer

A) a decrease in perceived risk. 
B) an increase in the required rate of return. 
C) an increase in the future sales price. 
D) current dividends are high. 
A) a decrease in perceived risk. 
B) an increase in the required rate of return. 
C) an increase in the future sales price. 
D) current dividends are high.

Question 19

Psychologists have found that people tend to be ________ in their own judgments.

Accepted Answer

A) underconfident 
B) overconfident 
C) indecisive 
D) insecure 
A) underconfident 
B) overconfident 
C) indecisive 
D) insecure

Question 20

Stock market crashes lead us to believe that

Accepted Answer

A) factors other than market fundamentals have an effect on asset prices. 
B) unexploited profit opportunities never exist. 
C) crashes are always predictable when market participants behave rationally. 
D) bubbles are a natural outcome of an efficient market. 
A) factors other than market fundamentals have an effect on asset prices. 
B) unexploited profit opportunities never exist. 
C) crashes are always predictable when market participants behave rationally. 
D) bubbles are a natural outcome of an efficient market.

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

The value of any investment is found by computing the

If expectations are formed adaptively,then people

Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club.Should you act on this information? Why or why not?

Information plays an important role in asset pricing because it allows the buyer to more accurately judge

Periodic payments of net earnings to shareholders are known as

For small investors,the best way to pursue a "buy and hold" strategy is to

If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%,what should happen to the price of the corporation's stock if the efficient markets hypothesis holds,everything else held constant?

The efficient markets hypothesis indicates that investors

People have a strong incentive to form rational expectations because

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

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

Using the Gordon growth formula,if D₁ is $2.00,kₑ is 12% or 0.12,and g is 10% or 0.10,then the current stock price is

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

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

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

The January effect refers to the fact that

A stock's price will fall if there is

Psychologists have found that people tend to be ________ in their own judgments.

Stock market crashes lead us to believe that

Why Study Money,banking,and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Nonbank Finance

Financial Derivatives

Conflicts of Interest in the Financial Industry

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation and the Demand for Money

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The IS Curve

The Monetary Policy and Aggregate Demand Curves

The Role of Expectations in Monetary Policy

The ISLM Model

Filters

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