Question 1

Which one of the following statements is correct concerning market efficiency?

Accepted Answer

A) A firm will generally receive a fair price when it sells shares of stock. 
B) In an efficient market, some market participants will have an advantage over others. 
C) If a market is efficient, arbitrage opportunities should be common. 
D) Real asset markets are more efficient than financial markets. 
E) New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock. 
A) A firm will generally receive a fair price when it sells shares of stock. 
B) In an efficient market, some market participants will have an advantage over others. 
C) If a market is efficient, arbitrage opportunities should be common. 
D) Real asset markets are more efficient than financial markets. 
E) New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock.

Question 2

Market efficiency says:

Accepted Answer

A) managers cannot boost stock prices through creative accounting. 
B) managers may profitably speculate in foreign currency. 
C) a good financial manager can time stock sales. 
D) prices may not reflect underlying value. 
E) None of the above. 
A) managers cannot boost stock prices through creative accounting. 
B) managers may profitably speculate in foreign currency. 
C) a good financial manager can time stock sales. 
D) prices may not reflect underlying value. 
E) None of the above.

Question 3

If the market is weak form efficient:

Accepted Answer

A) semistrong form efficiency may hold. 
B) markets are not weak form efficient. 
C) semistrong form efficiency must hold. 
D) strong form efficiency must hold. 
E) None of the above. 
A) semistrong form efficiency may hold. 
B) markets are not weak form efficient. 
C) semistrong form efficiency must hold. 
D) strong form efficiency must hold. 
E) None of the above.

Question 4

Insider trading does not offer any advantages if the financial markets are:

Accepted Answer

A) inefficient. 
B) semiweak-form efficient. 
C) strong-form efficient. 
D) semistrong-form efficient. 
E) weak form efficient. 
A) inefficient. 
B) semiweak-form efficient. 
C) strong-form efficient. 
D) semistrong-form efficient. 
E) weak form efficient.

Question 5

The notion that actual capital markets,such as the NYSE,are fairly priced is called the:

Accepted Answer

A) Law of One Price. 
B) Efficient Market Hypothesis (EMH). 
C) Laissez-Faire Axiom. 
D) Open Markets Theorem. 
E) Monopoly Pricing Theorem. 
A) Law of One Price. 
B) Efficient Market Hypothesis (EMH). 
C) Laissez-Faire Axiom. 
D) Open Markets Theorem. 
E) Monopoly Pricing Theorem.

Question 6

When the stock price follows a random walk,the price today is said to be equal to the prior period price plus the expected return for the period with any remaining: difference to the actual return due to

Accepted Answer

A) a predictable amount based on the past prices. 
B) a component based on new information unrelated to past prices. 
C) the security's risk. 
D) the risk free rate. 
E) None of the above. 
A) a predictable amount based on the past prices. 
B) a component based on new information unrelated to past prices. 
C) the security's risk. 
D) the risk free rate. 
E) None of the above.

Question 7

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:

Accepted Answer

A) stay at the same price, with no net effect. 
B) rise on the same day to the new price. 
C) decline gradually over the next few days. 
D) rise gradually over the next few days. 
E) drop on the same day to the new price. 
A) stay at the same price, with no net effect. 
B) rise on the same day to the new price. 
C) decline gradually over the next few days. 
D) rise gradually over the next few days. 
E) drop on the same day to the new price.

Question 8

Event studies have been used to examine:

Accepted Answer

A) IPOs, SEOs, and other equity issuances. 
B) changes in earnings. 
C) mergers and acquisitions. 
D) most financial events. 
E) All of the above. 
A) IPOs, SEOs, and other equity issuances. 
B) changes in earnings. 
C) mergers and acquisitions. 
D) most financial events. 
E) All of the above.

Question 9

The market price of a stock moves or fluctuates daily.This fluctuation is:

Accepted Answer

A) inconsistent with the semistrong efficient market hypothesis because prices should be stable. 
B) inconsistent with the weak form efficient market hypothesis because all past information should be priced in. 
C) consistent with the semistrong form of the efficient market hypothesis because as new information arrives daily prices will adjust to it. 
D) consistent with the strong form because prices are controlled by insiders. 
E) None of the above. 
A) inconsistent with the semistrong efficient market hypothesis because prices should be stable. 
B) inconsistent with the weak form efficient market hypothesis because all past information should be priced in. 
C) consistent with the semistrong form of the efficient market hypothesis because as new information arrives daily prices will adjust to it. 
D) consistent with the strong form because prices are controlled by insiders. 
E) None of the above.

Question 10

If the weak form of efficient markets hold,then:

Accepted Answer

A) technical analysis is useless. 
B) stock prices reflect all information contained in past prices. 
C) stock prices follow a random walk. 
D) All of the above. 
E) None of the above. 
A) technical analysis is useless. 
B) stock prices reflect all information contained in past prices. 
C) stock prices follow a random walk. 
D) All of the above. 
E) None of the above.

Question 11

An investor discovers that predictions about weather patterns published years in advance and found in the Farmer's Almanac are amazingly accurate.In fact,these predictions enable the investor to predict the health of the farm economy and therefore certain security prices.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) weak form of the efficient market hypothesis. 
D) A, B, and C 
E) None of the above. 
A) moderate form of the efficient market hypothesis. 
B) semistrong form of the efficient market hypothesis. 
C) weak form of the efficient market hypothesis. 
D) A, B, and C 
E) None of the above.

Question 12

An investor who picks a portfolio by throwing darts at the financial pages:

Accepted Answer

A) believes that riskier portfolios earn the same as less risky portfolios. 
B) believes that efficient markets will protect the portfolio from harm as all information is priced. 
C) does so because stock prices do not matter; only cash flow generated matters. 
D) Both A and C. 
E) Both B and C. 
A) believes that riskier portfolios earn the same as less risky portfolios. 
B) believes that efficient markets will protect the portfolio from harm as all information is priced. 
C) does so because stock prices do not matter; only cash flow generated matters. 
D) Both A and C. 
E) Both B and C.

Question 13

Under the concept of an efficient market,a random walk in stock prices means that:

Accepted Answer

A) there is no driving force behind price changes. 
B) technical analysts can predict future price movements to earn excess returns. 
C) the unexplained portion of price change in one period is unrelated to the unexplained portion of price change in any other period. 
D) the unexplained portion of price change in one period that can not be explained by expected return can only be explained by the unexplained portion of price change in a prior period. 
E) None of the above. 
A) there is no driving force behind price changes. 
B) technical analysts can predict future price movements to earn excess returns. 
C) the unexplained portion of price change in one period is unrelated to the unexplained portion of price change in any other period. 
D) the unexplained portion of price change in one period that can not be explained by expected return can only be explained by the unexplained portion of price change in a prior period. 
E) None of the above.

Question 14

Which of the following would be indicative of inefficient markets?

Accepted Answer

A) Overreaction and reversion 
B) Delayed response 
C) Immediate and accurate response 
D) Both A and B. 
E) Both A and C. 
A) Overreaction and reversion 
B) Delayed response 
C) Immediate and accurate response 
D) Both A and B. 
E) Both A and C.

Question 15

Behaviorial finance argues that:

Accepted Answer

A) investors may be irrational. 
B) irrationality may be related across investors rather than canceling out across investors. 
C) arbitrage strategies may involve too much risk to eliminate market efficiencies. 
D) A, B, and C 
E) None of the above. 
A) investors may be irrational. 
B) irrationality may be related across investors rather than canceling out across investors. 
C) arbitrage strategies may involve too much risk to eliminate market efficiencies. 
D) A, B, and C 
E) None of the above.

Question 16

The abnormal returns for initial public offerings over longer time periods seem to call market efficiency into question because:

Accepted Answer

A) the average returns at announcement are large and positive while the long-term results are much lower than the returns for seasoned equity offerings. 
B) the average returns at announcement are small and negative while the long-term results are much lower than the returns for seasoned equity offerings. 
C) the average returns at announcement are zero while the long-term results are much higher than the returns for seasoned equity offerings. 
D) the average returns at announcement are large and positive while the long-term results are much higher than the returns for seasoned equity offerings. 
E) the average returns at announcement are insignificant while the long-term results are much lower than the returns for seasoned equity offerings. 
A) the average returns at announcement are large and positive while the long-term results are much lower than the returns for seasoned equity offerings. 
B) the average returns at announcement are small and negative while the long-term results are much lower than the returns for seasoned equity offerings. 
C) the average returns at announcement are zero while the long-term results are much higher than the returns for seasoned equity offerings. 
D) the average returns at announcement are large and positive while the long-term results are much higher than the returns for seasoned equity offerings. 
E) the average returns at announcement are insignificant while the long-term results are much lower than the returns for seasoned equity offerings.

Question 17

The abnormal return in an event study is described as:

Accepted Answer

A) the return earned on the day of announcement for the stock. 
B) the excess return earned on the day of announcement for the stock. 
C) the total return earned for the investment holding period. 
D) All of the above. 
E) None of the above. 
A) the return earned on the day of announcement for the stock. 
B) the excess return earned on the day of announcement for the stock. 
C) the total return earned for the investment holding period. 
D) All of the above. 
E) None of the above.

Question 18

Your best friend works in the finance office of the Delta Corporation.You are aware that this friend trades Delta stock based on information he overhears in the office.You know that this information is not known to the general public.Your friend continually brags to you about the profits he earns trading Delta stock.Based on this information,you would tend to argue that the financial markets are at best _____ form efficient.

Accepted Answer

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

Question 19

An efficient capital market is one in which:

Accepted Answer

A) brokerage commissions are zero. 
B) taxes are irrelevant. 
C) securities always offer a positive rate of return to investors. 
D) security prices are guaranteed by the U.S.Securities and Exchange Commission to be fair. 
E) security prices reflect available information. 
A) brokerage commissions are zero. 
B) taxes are irrelevant. 
C) securities always offer a positive rate of return to investors. 
D) security prices are guaranteed by the U.S.Securities and Exchange Commission to be fair. 
E) security prices reflect available information.

Question 20

Define the three forms of market efficiency.

Accepted Answer

The student should present a straightfor

Which one of the following statements is correct concerning market efficiency?

Market efficiency says:

If the market is weak form efficient:

Insider trading does not offer any advantages if the financial markets are:

The notion that actual capital markets,such as the NYSE,are fairly priced is called the:

When the stock price follows a random walk,the price today is said to be equal to the prior period price plus the expected return for the period with any remaining: difference to the actual return due to

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:

Event studies have been used to examine:

The market price of a stock moves or fluctuates daily.This fluctuation is:

If the weak form of efficient markets hold,then:

An investor who picks a portfolio by throwing darts at the financial pages:

Under the concept of an efficient market,a random walk in stock prices means that:

Which of the following would be indicative of inefficient markets?

Behaviorial finance argues that:

The abnormal returns for initial public offerings over longer time periods seem to call market efficiency into question because:

The abnormal return in an event study is described as:

An efficient capital market is one in which:

Define the three forms of market efficiency.

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

Which one of the following statements is correct concerning market efficiency?

Market efficiency says:

If the market is weak form efficient:

Insider trading does not offer any advantages if the financial markets are:

The notion that actual capital markets,such as the NYSE,are fairly priced is called the:

When the stock price follows a random walk,the price today is said to be equal to the prior period price plus the expected return for the period with any remaining: difference to the actual return due to

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:

Event studies have been used to examine:

The market price of a stock moves or fluctuates daily.This fluctuation is:

If the weak form of efficient markets hold,then:

An investor who picks a portfolio by throwing darts at the financial pages:

Under the concept of an efficient market,a random walk in stock prices means that:

Which of the following would be indicative of inefficient markets?

Behaviorial finance argues that:

The abnormal returns for initial public offerings over longer time periods seem to call market efficiency into question because:

The abnormal return in an event study is described as:

An efficient capital market is one in which:

Define the three forms of market efficiency.

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