Question 1

From the time prior to announcement until an acquisition takes effect, the value of the stock of the acquiring company will likely:

Accepted Answer

A) rise sharply. 
B) rise sharply, then slowly fall. 
C) remain largely unchanged. 
D) fall slowly, then rise sharply. 
E) None of the above 
A) rise sharply. 
B) rise sharply, then slowly fall. 
C) remain largely unchanged. 
D) fall slowly, then rise sharply. 
E) None of the above

Question 2

Positive abnormal returns on stocks may represent a measurement error.

Accepted Answer

A) True 
 B)False

Question 3

Professors Fama and French maintain that the ratio of book value to market value is more important than either the size effect or the P/E effect in explaining superior stock performance.

Accepted Answer

A) True 
 B)False

Question 4

The Small Firm Effect asserts that there is a positive correlation between market capitalization and risk-adjusted returns.

Accepted Answer

A) True 
 B)False

Question 5

The delisting of a stock from the New York Stock Exchange tends to have a neutral effect on the stock on the last day of trading. However, the stock normally has downward movement approximately six months later.

Accepted Answer

A) True 
 B)False

Question 6

The Small Firm Effect is the theory that:

Accepted Answer

A) firms with small market capitalization outperform the market. 
B) small firms have greater market capitalization. 
C) transaction costs associated with dealing in larger capitalization firms might severely cut into profit potential. 
D) More than one of the above 
A) firms with small market capitalization outperform the market. 
B) small firms have greater market capitalization. 
C) transaction costs associated with dealing in larger capitalization firms might severely cut into profit potential. 
D) More than one of the above

Question 7

The basic premise of ________________ is that past trends in market movements can be used to forecast or understand the future.

Accepted Answer

A) the Efficient Market Hypothesis 
B) fundamental analysis 
C) technical analysis 
D) None of the above 
A) the Efficient Market Hypothesis 
B) fundamental analysis 
C) technical analysis 
D) None of the above

Question 8

In a merger, a white knight is:

Accepted Answer

A) a helpful investment banker that makes sure the merger is successful. 
B) a third company that buys the acquisition target before an unwanted suitor can. 
C) an investor who pays a high price to buy at least 5% of the shares of the acquisition target. 
D) a commercial banker that provides a guarantee that the financing for the merger will be available. 
A) a helpful investment banker that makes sure the merger is successful. 
B) a third company that buys the acquisition target before an unwanted suitor can. 
C) an investor who pays a high price to buy at least 5% of the shares of the acquisition target. 
D) a commercial banker that provides a guarantee that the financing for the merger will be available.

Question 9

Book value is not as important as the P/E and size effect, according to Professors Fama and French.

Accepted Answer

A) True 
 B)False

Question 10

To take maximum advantage of new issues, an investor should own a stock for at least one year.

Accepted Answer

A) True 
 B)False

Question 11

Under-pricing of new stock issues helps ensure the investment banker that the issue will be fully subscribed to at the initial market price.

Accepted Answer

A) True 
 B)False

Question 12

The strong form of the EMH is generally confirmed by research evidence.

Accepted Answer

A) True 
 B)False

Question 13

The strong form of the efficient market hypothesis states that:

Accepted Answer

A) a market is more than highly efficient; it is actually perfect. 
B) it is easy to beat the market. 
C) mutual fund managers are superior performers. 
D) None of the above 
A) a market is more than highly efficient; it is actually perfect. 
B) it is easy to beat the market. 
C) mutual fund managers are superior performers. 
D) None of the above

Question 14

OTC stocks may not uphold the semi-strong form of the efficient market hypothesis, while listed stocks generally do.

Accepted Answer

A) True 
 B)False

Question 15

Why does a stock repurchase improve the after-tax position of stockholders over cash dividends?

Accepted Answer

A) The theoretical increase in value is taxed at the lower capital gains rate 
B) Reduced shares outstanding increase earnings per share 
C) Cash dividends are taxed as ordinary income 
D) All of the above 
A) The theoretical increase in value is taxed at the lower capital gains rate 
B) Reduced shares outstanding increase earnings per share 
C) Cash dividends are taxed as ordinary income 
D) All of the above

Question 16

The study by Fama and French maintains that the lower the ratio of market value to book value, the:

Accepted Answer

A) more overvalued the stock price. 
B) higher the potential return on the stock. 
C) higher the expected growth in earnings. 
D) lower the expected growth in earnings. 
A) more overvalued the stock price. 
B) higher the potential return on the stock. 
C) higher the expected growth in earnings. 
D) lower the expected growth in earnings.

Question 17

Cash tender offers in mergers have tax advantages as compared to stock tender offers.

Accepted Answer

A) True 
 B)False

Question 18

Legal methods for attempting to profit through mergers and acquisitions include all of the following, except identifying

Accepted Answer

A) an insider close to the information. 
B) candidates through financial or operating characteristics. 
C) securities which are undergoing unusual volume or pricing patterns. 
D) industries where companies are being absorbeD. 
A) an insider close to the information. 
B) candidates through financial or operating characteristics. 
C) securities which are undergoing unusual volume or pricing patterns. 
D) industries where companies are being absorbeD.

Question 19

The three forms of the efficient market hypothesis (not in any particular order) are stated as:

Accepted Answer

A) weak, semi-strong, and superior. 
B) weak, normal, and strong. 
C) semi-strong, weak, and strong. 
D) semi-strong, normal, and superior. 
A) weak, semi-strong, and superior. 
B) weak, normal, and strong. 
C) semi-strong, weak, and strong. 
D) semi-strong, normal, and superior.

Question 20

There is a strong upward movement in the price of OTC securities which are to be listed on an exchange, but this increase generally tapers off after the listing.

Accepted Answer

A) True 
 B)False

Exam 9: Efficient Markets and Anomalies

From the time prior to announcement until an acquisition takes effect, the value of the stock of the acquiring company will likely:

Positive abnormal returns on stocks may represent a measurement error.

Professors Fama and French maintain that the ratio of book value to market value is more important than either the size effect or the P/E effect in explaining superior stock performance.

The Small Firm Effect asserts that there is a positive correlation between market capitalization and risk-adjusted returns.

The delisting of a stock from the New York Stock Exchange tends to have a neutral effect on the stock on the last day of trading. However, the stock normally has downward movement approximately six months later.

The Small Firm Effect is the theory that:

The basic premise of ________________ is that past trends in market movements can be used to forecast or understand the future.

In a merger, a white knight is:

Book value is not as important as the P/E and size effect, according to Professors Fama and French.

To take maximum advantage of new issues, an investor should own a stock for at least one year.

Under-pricing of new stock issues helps ensure the investment banker that the issue will be fully subscribed to at the initial market price.

The strong form of the EMH is generally confirmed by research evidence.

The strong form of the efficient market hypothesis states that:

OTC stocks may not uphold the semi-strong form of the efficient market hypothesis, while listed stocks generally do.

Why does a stock repurchase improve the after-tax position of stockholders over cash dividends?

The study by Fama and French maintains that the lower the ratio of market value to book value, the:

Cash tender offers in mergers have tax advantages as compared to stock tender offers.

Legal methods for attempting to profit through mergers and acquisitions include all of the following, except identifying

The three forms of the efficient market hypothesis (not in any particular order) are stated as:

There is a strong upward movement in the price of OTC securities which are to be listed on an exchange, but this increase generally tapers off after the listing.

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

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