Question 1

Financial markets fluctuate daily because they:

Accepted Answer

A) are inefficient. 
B) are continually reacting to new information. 
C) slowly react to new information. 
D) only reflect historical information. 
E) offer tremendous arbitrage opportunities. 
A) are inefficient. 
B) are continually reacting to new information. 
C) slowly react to new information. 
D) only reflect historical information. 
E) offer tremendous arbitrage opportunities. B

Question 2

Which of the following tend to reinforce the argument that the financial markets are efficient?
I.Information spreads rapidly in today's world.
II.There is tremendous competition in the financial markets.
III.Market prices continually fluctuate.
IV.Market prices react suddenly to unexpected news announcements.

Accepted Answer

A) I and III only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and III only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV E

Question 3

In an efficient market,the price of a security will:

Accepted Answer

A) always rise immediately upon the release of new information with no further price adjustments related to that information. 
B) react to new information over a two-day period after which time no further price adjustments related to that information will occur. 
C) rise sharply when new information is first released and then decline to a new stable level by the following day. 
D) react immediately to new information with no further price adjustments related to that information. 
E) be slow to react for the first few hours after new information is released allowing time for that information to be reviewed and analyzed. 
A) always rise immediately upon the release of new information with no further price adjustments related to that information. 
B) react to new information over a two-day period after which time no further price adjustments related to that information will occur. 
C) rise sharply when new information is first released and then decline to a new stable level by the following day. 
D) react immediately to new information with no further price adjustments related to that information. 
E) be slow to react for the first few hours after new information is released allowing time for that information to be reviewed and analyzed. D

Question 4

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages.He finds that he can "beat the market" by short-selling the stock of the firm that will be sued.This finding is a violation of the:

Accepted Answer

A) moderate form of the efficient market hypothesis. 
B) semistrong form of the efficient market hypothesis. 
C) strong form of the efficient market hypothesis. 
D) weak form of the efficient market hypothesis. 
E) None of the above. 
A) moderate form of the efficient market hypothesis. 
B) semistrong form of the efficient market hypothesis. 
C) strong form of the efficient market hypothesis. 
D) weak form of the efficient market hypothesis. 
E) None of the above.

Question 5

Which of the following is true?

Accepted Answer

A) A random walk for stock price changes is inconsistent with observed patterns in price changes. 
B) If the stock market follows a random walk,price changes should be highly correlated. 
C) If the stock market is weak form efficient,then stock prices follow a random walk. 
D) All of the above. 
E) Both B and C. 
A) A random walk for stock price changes is inconsistent with observed patterns in price changes. 
B) If the stock market follows a random walk,price changes should be highly correlated. 
C) If the stock market is weak form efficient,then stock prices follow a random walk. 
D) All of the above. 
E) Both B and C.

Question 6

A semistrong efficient market is distinct from a weak form efficient market in historical prices by:

Accepted Answer

A) incorporating only random movements in the price. 
B) incorporating inside information in the price. 
C) incorporating all publicly available information in the price. 
D) All of the above. 
E) None of the above. 
A) incorporating only random movements in the price. 
B) incorporating inside information in the price. 
C) incorporating all publicly available information in the price. 
D) All of the above. 
E) None of the above.

Question 7

Which of the following is not true about serial correlation?

Accepted Answer

A) Significant positive or negative serial correlation coefficients are indicative of market inefficiency in the weak form. 
B) It involves only one security. 
C) Negative serial correlation indicates a tendency toward reversal. 
D) Positive serial correlation indicates a tendency for continuation. 
E) It measures the correlation between the current return on a security and the current return on another security. 
A) Significant positive or negative serial correlation coefficients are indicative of market inefficiency in the weak form. 
B) It involves only one security. 
C) Negative serial correlation indicates a tendency toward reversal. 
D) Positive serial correlation indicates a tendency for continuation. 
E) It measures the correlation between the current return on a security and the current return on another security.

Question 8

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

Question 9

The thought that investors might be too slow in adjusting their beliefs to new information is called:

Accepted Answer

A) liberalism. 
B) conservatism. 
C) representativeness. 
D) weak form efficiency. 
E) None of the above. 
A) liberalism. 
B) conservatism. 
C) representativeness. 
D) weak form efficiency. 
E) None of the above.

Question 10

If behaviorial finance holds,this implies:

Accepted Answer

A) all investors are irrational some of the time. 
B) all investors are irrational all the time. 
C) some investors are irrational some of the time. 
D) some investors are irrational all of the time. 
E) all investors are irrational none of the time. 
A) all investors are irrational some of the time. 
B) all investors are irrational all the time. 
C) some investors are irrational some of the time. 
D) some investors are irrational all of the time. 
E) all investors are irrational none of the time.

Question 11

If you excel in analyzing the future outlook of firms,you would prefer that the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Accepted Answer

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

Question 12

If a market is strong form efficiency,it also implies that:

Accepted Answer

A) semistrong efficiency holds. 
B) weak form efficiency holds. 
C) one cannot earn abnormal returns with inside information. 
D) Both A and C. 
E) A,B and C. 
A) semistrong efficiency holds. 
B) weak form efficiency holds. 
C) one cannot earn abnormal returns with inside information. 
D) Both A and C. 
E) A,B and C.

Question 13

Explain why it is that in an efficient market,investments have an expected NPV of zero.

Accepted Answer

In an efficient market,prices are "fair"

Question 14

Which of the following statements is true?

Accepted Answer

A) In efficient markets, a stock's price should change with the arrival of new information. 
B) Average stock returns are higher in January than other months. 
C) Studies by Fama and French and others find the fact that returns of high book to market stocks are much higher than low book to market value stocks is consistent with the efficient market hypothesis. 
D) All of the above. 
E) None of the above. 
A) In efficient markets, a stock's price should change with the arrival of new information. 
B) Average stock returns are higher in January than other months. 
C) Studies by Fama and French and others find the fact that returns of high book to market stocks are much higher than low book to market value stocks is consistent with the efficient market hypothesis. 
D) All of the above. 
E) None of the above.

Question 15

An investor discovers that stock prices change drastically as a result of certain events.This finding is a violation of the:

Accepted Answer

A) moderate form of the efficient market hypothesis. 
B) semistrong form of the efficient market hypothesis. 
C) strong form of the efficient market hypothesis. 
D) weak form of the efficient market hypothesis. 
E) None of the above. 
A) moderate form of the efficient market hypothesis. 
B) semistrong form of the efficient market hypothesis. 
C) strong form of the efficient market hypothesis. 
D) weak form of the efficient market hypothesis. 
E) None of the above.

Question 16

Which form of the efficient market hypothesis implies that security prices reflect only information contained in past prices?

Accepted Answer

A) Past form 
B) Semistrong form 
C) Hard form 
D) Strong form 
E) Weak form 
A) Past form 
B) Semistrong form 
C) Hard form 
D) Strong form 
E) Weak form

Question 17

Ritter's study of Initial Public Offerings (IPOs)showed that the post offering stock performance was:

Accepted Answer

A) less than the control group by about 2% in the five years following the IPO. 
B) incorrectly priced at issuance because over the next five years the abnormal returns were greater than zero on average. 
C) immaterial to the pricing of the IPO because future market performance is unknown at issuance. 
D) equal across IPOs, irrespective of risk or which year they were issued. 
E) All of the above. 
A) less than the control group by about 2% in the five years following the IPO. 
B) incorrectly priced at issuance because over the next five years the abnormal returns were greater than zero on average. 
C) immaterial to the pricing of the IPO because future market performance is unknown at issuance. 
D) equal across IPOs, irrespective of risk or which year they were issued. 
E) All of the above.

Question 18

Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?

Accepted Answer

Good answers to this question might indi

Question 19

If the financial markets are efficient,then investors should expect their investments in those markets to:

Accepted Answer

A) earn extraordinary returns on a routine basis. 
B) generally have zero net present values. 
C) generally have positive net present values. 
D) produce arbitrage opportunities on a routine basis. 
E) produce negative returns on a routine basis. 
A) earn extraordinary returns on a routine basis. 
B) generally have zero net present values. 
C) generally have positive net present values. 
D) produce arbitrage opportunities on a routine basis. 
E) produce negative returns on a routine basis.

Question 20

What is behavioral finance?
 Explain the principles behind behavioral finance.

Accepted Answer

Behavioral finance argues that not all t

Financial markets fluctuate daily because they:

In an efficient market,the price of a security will:

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages.He finds that he can "beat the market" by short-selling the stock of the firm that will be sued.This finding is a violation of the:

Which of the following is true?

A semistrong efficient market is distinct from a weak form efficient market in historical prices by:

Which of the following is not true about serial correlation?

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.

The thought that investors might be too slow in adjusting their beliefs to new information is called:

If behaviorial finance holds,this implies:

If you excel in analyzing the future outlook of firms,you would prefer that the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

If a market is strong form efficiency,it also implies that:

Explain why it is that in an efficient market,investments have an expected NPV of zero.

Which of the following statements is true?

An investor discovers that stock prices change drastically as a result of certain events.This finding is a violation of the:

Which form of the efficient market hypothesis implies that security prices reflect only information contained in past prices?

Ritter's study of Initial Public Offerings (IPOs)showed that the post offering stock performance was:

Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?

If the financial markets are efficient,then investors should expect their investments in those markets to:

What is behavioral finance? Explain the principles behind behavioral finance.

Introduction to Corporate Finance

Financial Statements Cash Flow

Financial Statements Analysis and Long-Term Planning

Discounted Cash Flow Valuation

Interest Rate 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 Capital Budgeting

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividend and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Filters

Exam 13: Efficient Capital Markets and Behavioral Challenges

Financial markets fluctuate daily because they:

In an efficient market,the price of a security will:

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages.He finds that he can "beat the market" by short-selling the stock of the firm that will be sued.This finding is a violation of the:

Which of the following is true?

A semistrong efficient market is distinct from a weak form efficient market in historical prices by:

Which of the following is not true about serial correlation?

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.

The thought that investors might be too slow in adjusting their beliefs to new information is called:

If behaviorial finance holds,this implies:

If you excel in analyzing the future outlook of firms,you would prefer that the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

If a market is strong form efficiency,it also implies that:

Explain why it is that in an efficient market,investments have an expected NPV of zero.

Which of the following statements is true?

An investor discovers that stock prices change drastically as a result of certain events.This finding is a violation of the:

Which form of the efficient market hypothesis implies that security prices reflect only information contained in past prices?

Ritter's study of Initial Public Offerings (IPOs)showed that the post offering stock performance was:

Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?

If the financial markets are efficient,then investors should expect their investments in those markets to:

What is behavioral finance? Explain the principles behind behavioral finance.

Introduction to Corporate Finance

Financial Statements Cash Flow

Financial Statements Analysis and Long-Term Planning

Discounted Cash Flow Valuation

Interest Rate 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 Capital Budgeting

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividend and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Filters