Question 1

Which one of these serial correlation values is the strongest indicator of price continuation?

Accepted Answer

A) -0.5 
B) -0.25 
C) 0 
D) +0.25 
E) +0.5 
A) -0.5 
B) -0.25 
C) 0 
D) +0.25 
E) +0.5

Question 2

The efficient market hypothesis says that

Accepted Answer

A) market prices reflect underlying asset values. 
B) individual investors should not participate in the financial markets. 
C) investors should expect to earn abnormal profits. 
D) financial managers can accurately time stock and bond sales. 
E) creative accounting can be used to inflate stock prices. 
A) market prices reflect underlying asset values. 
B) individual investors should not participate in the financial markets. 
C) investors should expect to earn abnormal profits. 
D) financial managers can accurately time stock and bond sales. 
E) creative accounting can be used to inflate stock prices.

Question 3

Which one of these is an indicator that a market is efficient?

Accepted Answer

A) Positive serial correlation coefficients equal to or greater than 1 
B) Lack of daily price movement 
C) Lack of any adjustment for degree of risk 
D) Repetitive price patterns 
E) Normal rates of return 
A) Positive serial correlation coefficients equal to or greater than 1 
B) Lack of daily price movement 
C) Lack of any adjustment for degree of risk 
D) Repetitive price patterns 
E) Normal rates of return

Question 4

Given the vast resources available to mutual fund managers,these managers on average have generally

Accepted Answer

A) outperformed the overall market on a risk-adjusted basis. 
B) eliminated excess profits for arbitrageurs. 
C) beat broad-based indexes. 
D) proved the market to be strong form efficient. 
E) underperformed the market on a risk-adjusted basis. 
A) outperformed the overall market on a risk-adjusted basis. 
B) eliminated excess profits for arbitrageurs. 
C) beat broad-based indexes. 
D) proved the market to be strong form efficient. 
E) underperformed the market on a risk-adjusted basis.

Question 5

The hypothesis that market prices reflect all available information of every kind is called ________ form efficiency.

Accepted Answer

A) stable 
B) weak 
C) semistrong 
D) strong 
E) open 
A) stable 
B) weak 
C) semistrong 
D) strong 
E) open

Question 6

Researchers have found that over long periods of time

Accepted Answer

A) the difference between the returns on large company and small company stocks is due solely to the difference in their risks. 
B) strong form market efficiency exists,without argument. 
C) large company stocks tend to outperform small company stocks. 
D) arbitrage has no effect on market efficiency. 
E) value stocks may outperform growth stocks on a risk-adjusted basis but no firm conclusion can be drawn. 
A) the difference between the returns on large company and small company stocks is due solely to the difference in their risks. 
B) strong form market efficiency exists,without argument. 
C) large company stocks tend to outperform small company stocks. 
D) arbitrage has no effect on market efficiency. 
E) value stocks may outperform growth stocks on a risk-adjusted basis but no firm conclusion can be drawn.

Question 7

Market efficiency

Accepted Answer

A) or the lack thereof,is highly controversial. 
B) has been proven to exist only during times when earnings surprises are minimal. 
C) has been proven to be strong form efficient for all publicly traded markets. 
D) advocates that market prices are correct with both perfect foresight and hindsight. 
E) as a hypothesis has been disproven in its entirety. 
A) or the lack thereof,is highly controversial. 
B) has been proven to exist only during times when earnings surprises are minimal. 
C) has been proven to be strong form efficient for all publicly traded markets. 
D) advocates that market prices are correct with both perfect foresight and hindsight. 
E) as a hypothesis has been disproven in its entirety.

Question 8

Managers are probably best qualified to predict when

Accepted Answer

A) currency exchange rates are most favorable. 
B) a firm they wish to acquire is most undervalued. 
C) market interest rates are at their lowest point. 
D) interest rates are peaking. 
E) their company's stock is overvalued. 
A) currency exchange rates are most favorable. 
B) a firm they wish to acquire is most undervalued. 
C) market interest rates are at their lowest point. 
D) interest rates are peaking. 
E) their company's stock is overvalued.

Question 9

Research has found that investors tend to react to earnings surprises

Accepted Answer

A) slowly,which illustrates conservatism. 
B) immediately and fully on the day the information becomes public. 
C) quickly and efficiently. 
D) in the same manner whether they are positive or negative surprises. 
E) always in a negative manner as they do not like any surprises. 
A) slowly,which illustrates conservatism. 
B) immediately and fully on the day the information becomes public. 
C) quickly and efficiently. 
D) in the same manner whether they are positive or negative surprises. 
E) always in a negative manner as they do not like any surprises.

Question 10

Which one of these is a finding of Ritter's study of initial public offerings (IPOs)?

Accepted Answer

A) Firms with either IPOs or SEPs tend to outperform their control groups for the 5-year period following the issue of the new securities. 
B) IPOs are generally incorrectly priced at issuance because over the next 5 years the IPO firm's abnormal returns exceeded 6 percent on average. 
C) The annual returns for IPO firms during the 5-year period following an IPO are about 2 percent lower than their control group. 
D) Comparable IPO and non-IPO firms had similar returns for the 5-year period following an IPO. 
E) IPO firms tend to lose 10 percent or more of their market value in the 2 years following their IPO. 
A) Firms with either IPOs or SEPs tend to outperform their control groups for the 5-year period following the issue of the new securities. 
B) IPOs are generally incorrectly priced at issuance because over the next 5 years the IPO firm's abnormal returns exceeded 6 percent on average. 
C) The annual returns for IPO firms during the 5-year period following an IPO are about 2 percent lower than their control group. 
D) Comparable IPO and non-IPO firms had similar returns for the 5-year period following an IPO. 
E) IPO firms tend to lose 10 percent or more of their market value in the 2 years following their IPO.

Question 11

Franklin Mills announced at Time t that it just sold its worst performing division.There were no other announcements affecting the firm.The firm's stock had daily returns of −0.2,+0.1,+0.4,−0.1,+0.2 for Timet − 2 to Timet + 2,respectively.The daily returns on the market were −0.1,+0.2,+0.3,−0.2,and +0.2 for Timet − 2 to Timet + 2,respectively.What is the cumulative abnormal return for these 5 days?

Accepted Answer

A) 0.3 
B) 0.8 
C) 1.1 
D) 0.5 
E) 0.6 
A) 0.3 
B) 0.8 
C) 1.1 
D) 0.5 
E) 0.6

Question 12

The hypothesis that market prices reflect all publicly available information is called ________ form efficiency.

Accepted Answer

A) open 
B) strong 
C) semistrong 
D) weak 
E) stable 
A) open 
B) strong 
C) semistrong 
D) weak 
E) stable

Question 13

If the market is fully efficient,then an announcement by a firm of a new product with a high net present value will cause the market price of that firm's stock to

Accepted Answer

A) remain constant. 
B) rise gradually over the next few days. 
C) decline gradually over the next few days. 
D) immediately increase to a new level equivalent to the increased value of the firm. 
E) immediately decline to a new level equivalent to the decreased value of the firm. 
A) remain constant. 
B) rise gradually over the next few days. 
C) decline gradually over the next few days. 
D) immediately increase to a new level equivalent to the increased value of the firm. 
E) immediately decline to a new level equivalent to the decreased value of the firm.

Question 14

The research done by Ikenberry,Lakonishok,and Vermaelen supports the argument that mangers:

Accepted Answer

A) effectively time IPOs but not SEOs. 
B) cannot effectively time IPOs. 
C) cannot effectively time either stock sales or repurchases. 
D) effectively time stock repurchases. 
E) can effectively time stock sales but not repurchases. 
A) effectively time IPOs but not SEOs. 
B) cannot effectively time IPOs. 
C) cannot effectively time either stock sales or repurchases. 
D) effectively time stock repurchases. 
E) can effectively time stock sales but not repurchases.

Question 15

Serial correlation

Accepted Answer

A) tends to prove that markets are totally inefficient. 
B) supports weak form efficiency. 
C) coefficients tend to range between 0.75 and 1. 
D) is best used to identify insider trading. 
E) best indicates that markets are semi-strong form efficient. 
A) tends to prove that markets are totally inefficient. 
B) supports weak form efficiency. 
C) coefficients tend to range between 0.75 and 1. 
D) is best used to identify insider trading. 
E) best indicates that markets are semi-strong form efficient.

Question 16

The cause of the October 19,1987 stock market crash

Accepted Answer

A) is related to actions taken on that date by the Federal Reserve Bank. 
B) has been identified as the result of major internet company announcements on the prior day. 
C) resulted from losses in international markets. 
D) has yet to be determined. 
E) was the result of regulatory changes that were implemented that morning. 
A) is related to actions taken on that date by the Federal Reserve Bank. 
B) has been identified as the result of major internet company announcements on the prior day. 
C) resulted from losses in international markets. 
D) has yet to be determined. 
E) was the result of regulatory changes that were implemented that morning.

Question 17

Southern Goods announced at Time t that it was replacing its CEO.There were no other announcements affecting the firm.The stock had daily returns of 0.1,+0.2,−0.8,−0.3,+0.5 for Timet − 2 to Timet + 2,respectively.The daily returns on the market were 0.1,+0.2,−0.4,−0.2,and +0.2 for Timet − 2 to Timet + 2,respectively.What is the cumulative abnormal return for these 5 days?

Accepted Answer

A) 0.1 
B) 0.3 
C) −0.2 
D) −0.1 
E) −0.3 
A) 0.1 
B) 0.3 
C) −0.2 
D) −0.1 
E) −0.3

Question 18

ALLGO announced at Time t that it was acquiring DoLittle Industries.There were no other announcements affecting these firms.ALLGO's stock had daily returns of +0.1,+0,−0.5,−0.2,+0.1 for Timet − 2 to Timet + 2,respectively.The daily returns on the market were −0.1,+0.2,+0.3,−0.2,and +0.2 for Timet − 2 to Timet + 2,respectively.What is the cumulative abnormal return for these 5 days?

Accepted Answer

A) −0.7 
B) −0.9 
C) −0.5 
D) −0.8 
E) −0.3 
A) −0.7 
B) −0.9 
C) −0.5 
D) −0.8 
E) −0.3

Question 19

The U.S.Securities and Exchange Commission periodically charges individuals for insider trading and claims those individuals have made unfair profits.Based on this fact,you would tend to argue that the financial markets are at best ________ form efficient.

Accepted Answer

A) weak 
B) semiweak 
C) semistrong 
D) perfect 
E) strong 
A) weak 
B) semiweak 
C) semistrong 
D) perfect 
E) strong

Question 20

What does weak form efficiency imply?

Accepted Answer

A) Portfolio diversification is ineffective as all prices are interrelated. 
B) Past price movement is unrelated to the movement of future prices. 
C) Abnormal returns will disappear within a trading day. 
D) Price patterns that existed in the past will reappear in the future. 
E) Investors cannot earn abnormal profits based on any publicly available information. 
A) Portfolio diversification is ineffective as all prices are interrelated. 
B) Past price movement is unrelated to the movement of future prices. 
C) Abnormal returns will disappear within a trading day. 
D) Price patterns that existed in the past will reappear in the future. 
E) Investors cannot earn abnormal profits based on any publicly available information.

Which one of these serial correlation values is the strongest indicator of price continuation?

The efficient market hypothesis says that

Which one of these is an indicator that a market is efficient?

Given the vast resources available to mutual fund managers,these managers on average have generally

The hypothesis that market prices reflect all available information of every kind is called ________ form efficiency.

Researchers have found that over long periods of time

Market efficiency

Managers are probably best qualified to predict when

Research has found that investors tend to react to earnings surprises

Which one of these is a finding of Ritter's study of initial public offerings (IPOs)?

The hypothesis that market prices reflect all publicly available information is called ________ form efficiency.

If the market is fully efficient,then an announcement by a firm of a new product with a high net present value will cause the market price of that firm's stock to

The research done by Ikenberry,Lakonishok,and Vermaelen supports the argument that mangers:

Serial correlation

The cause of the October 19,1987 stock market crash

The U.S.Securities and Exchange Commission periodically charges individuals for insider trading and claims those individuals have made unfair profits.Based on this fact,you would tend to argue that the financial markets are at best ________ form efficient.

What does weak form efficiency imply?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters

Exam 13: Efficient Capital Markets and Behavioral Challenges

Which one of these serial correlation values is the strongest indicator of price continuation?

The efficient market hypothesis says that

Which one of these is an indicator that a market is efficient?

Given the vast resources available to mutual fund managers,these managers on average have generally

The hypothesis that market prices reflect all available information of every kind is called ________ form efficiency.

Researchers have found that over long periods of time

Market efficiency

Managers are probably best qualified to predict when

Research has found that investors tend to react to earnings surprises

Which one of these is a finding of Ritter's study of initial public offerings (IPOs)?

The hypothesis that market prices reflect all publicly available information is called ________ form efficiency.

If the market is fully efficient,then an announcement by a firm of a new product with a high net present value will cause the market price of that firm's stock to

The research done by Ikenberry,Lakonishok,and Vermaelen supports the argument that mangers:

Serial correlation

The cause of the October 19,1987 stock market crash

The U.S.Securities and Exchange Commission periodically charges individuals for insider trading and claims those individuals have made unfair profits.Based on this fact,you would tend to argue that the financial markets are at best ________ form efficient.

What does weak form efficiency imply?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters