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

General Electric announces that it is going to cut its dividends by $0.02 per share in the future. This, everything else remaining the same, will cause its current stock price to ________.

________ and ________ may provide an explanation for stock market bubbles.

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?

The efficient markets hypothesis indicates that investors ________.

Which of the following accurately summarizes the empirical evidence about technical analysis?

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

Excessive volatility refers to the fact that ________.

If you your stock broker tells you that you should buy stock in Ford as it has devised a new hybrid engine system that will reduce consumption of fuel by 90 percent, would you follow this advice and buy Ford's stock?

The efficient markets hypothesis suggests that investors ________.

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 ________.

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 percent, the current price of the stock would be ________.

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

Tests used to rate the performance of rules developed in technical analysis conclude that technical analysis ________.

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

The subprime financial crisis lead to a decline in stock prices because ________.

In the one-period valuation model, the current stock price increases if ________.

A stockholder's ownership of a company's stock gives her the right to ________.

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

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

One of the assumptions of the Gordon Growth Model is that dividends will continue growing at ________ rate.