Question 1

In October 2008,the stock market crashed,falling by ________ from its peak value a year earlier.

Accepted Answer

A) over 40% 
B) over 30% 
C) over 50% 
D) over 25% 
A) over 40% 
B) over 30% 
C) over 50% 
D) over 25%

Question 2

Rational expectations forecast errors will on average be ________ and therefore ________ be predicted ahead of time.

Accepted Answer

A) positive; can 
B) positive; cannot 
C) negative; can 
D) zero; cannot 
A) positive; can 
B) positive; cannot 
C) negative; can 
D) zero; cannot

Question 3

In the Gordon Growth Model,the growth rate is assumed to be ________ the required return on equity.

Accepted Answer

A) greater than 
B) equal to 
C) less than 
D) proportional to 
A) greater than 
B) equal to 
C) less than 
D) proportional to

Question 4

New information that might lead to a decrease in an asset's price might be

Accepted Answer

A) an expected decrease in the level of future dividends. 
B) a decrease in the required rate of return. 
C) an expected increase in the dividend growth rate. 
D) an expected increase in the future sales price. 
A) an expected decrease in the level of future dividends. 
B) a decrease in the required rate of return. 
C) an expected increase in the dividend growth rate. 
D) an expected increase in the future sales price.

Question 5

If during the past decade the average rate of monetary growth has been 5% and the average inflation rate has been 5%,everything else held constant,when the Federal Reserve announces that the new rate of monetary growth will be 10%,the adaptive expectation forecast of the inflation rate is

Accepted Answer

A) 5%. 
B) between 5 and 10%. 
C) 10%. 
D) more than 10%. 
A) 5%. 
B) between 5 and 10%. 
C) 10%. 
D) more than 10%.

Question 6

Excessive volatility refers to the fact that

Accepted Answer

A) stock returns display mean reversion. 
B) stock prices can be slow to react to new information. 
C) stock price tend to rise in the month of January. 
D) stock prices fluctuate more than is justified by dividend fluctuations. 
A) stock returns display mean reversion. 
B) stock prices can be slow to react to new information. 
C) stock price tend to rise in the month of January. 
D) stock prices fluctuate more than is justified by dividend fluctuations.

Question 7

Using the Gordon growth formula,if D1 is $2.00,ke is 12% or 0.12,and g is 10% or 0.10,then the current stock price is

Accepted Answer

A) $20. 
B) $50. 
C) $100. 
D) $150. 
A) $20. 
B) $50. 
C) $100. 
D) $150.

Question 8

________ means people are more unhappy when they suffer losses than they are happy when they achieve gains.

Accepted Answer

A) Loss fundamentals 
B) Loss aversion 
C) Loss leader 
D) Loss cycle 
A) Loss fundamentals 
B) Loss aversion 
C) Loss leader 
D) Loss cycle

Question 9

If in an efficient market all prices are correct and reflect market fundamentals,which of the following is a false statement?

Accepted Answer

A) A stock that has done poorly in the past is more likely to do well in the future. 
B) One investment is as good as any other because the securities' prices are correct. 
C) A security's price reflects all available information about the intrinsic value of the security. 
D) Security prices can be used by managers to assess their cost of capital accurately. 
A) A stock that has done poorly in the past is more likely to do well in the future. 
B) One investment is as good as any other because the securities' prices are correct. 
C) A security's price reflects all available information about the intrinsic value of the security. 
D) Security prices can be used by managers to assess their cost of capital accurately.

Question 10

Suppose Barbara looks out in the morning and sees a clear sky so decides that a picnic for lunch is a good idea.Last night the weather forecast included a 100% chance of rain by midday but Barbara did not watch the local news program.Is Barbara's prediction of good weather at lunch time rational? Why or why not?

Accepted Answer

No,this prediction is not using rational

Question 11

If a mutual fund outperforms the market in one period,evidence suggests that this fund is

Accepted Answer

A) highly likely to consistently outperform the market in subsequent periods due to its superior investment strategy. 
B) likely to under-perform the market in subsequent periods to average its overall returns. 
C) not likely to consistently outperform the market in subsequent periods. 
D) not likely to outperform the market in any subsequent period. 
A) highly likely to consistently outperform the market in subsequent periods due to its superior investment strategy. 
B) likely to under-perform the market in subsequent periods to average its overall returns. 
C) not likely to consistently outperform the market in subsequent periods. 
D) not likely to outperform the market in any subsequent period.

In October 2008,the stock market crashed,falling by ________ from its peak value a year earlier.

Rational expectations forecast errors will on average be and therefore be predicted ahead of time.

In the Gordon Growth Model,the growth rate is assumed to be ________ the required return on equity.

New information that might lead to a decrease in an asset's price might be

If during the past decade the average rate of monetary growth has been 5% and the average inflation rate has been 5%,everything else held constant,when the Federal Reserve announces that the new rate of monetary growth will be 10%,the adaptive expectation forecast of the inflation rate is

Excessive volatility refers to the fact that

Using the Gordon growth formula,if D₁ is $2.00,k_e is 12% or 0.12,and g is 10% or 0.10,then the current stock price is

________ means people are more unhappy when they suffer losses than they are happy when they achieve gains.

If in an efficient market all prices are correct and reflect market fundamentals,which of the following is a false statement?

If a mutual fund outperforms the market in one period,evidence suggests that this fund is

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

An Economic Analysis of Financial Structure

Financial Crises and the Subprime Meltdown

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

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

In October 2008,the stock market crashed,falling by ________ from its peak value a year earlier.

Rational expectations forecast errors will on average be ________ and therefore ________ be predicted ahead of time.

In the Gordon Growth Model,the growth rate is assumed to be ________ the required return on equity.

New information that might lead to a decrease in an asset's price might be

If during the past decade the average rate of monetary growth has been 5% and the average inflation rate has been 5%,everything else held constant,when the Federal Reserve announces that the new rate of monetary growth will be 10%,the adaptive expectation forecast of the inflation rate is

Excessive volatility refers to the fact that

Using the Gordon growth formula,if D1 is $2.00,ke is 12% or 0.12,and g is 10% or 0.10,then the current stock price is

________ means people are more unhappy when they suffer losses than they are happy when they achieve gains.

If in an efficient market all prices are correct and reflect market fundamentals,which of the following is a false statement?

If a mutual fund outperforms the market in one period,evidence suggests that this fund is

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

An Economic Analysis of Financial Structure

Financial Crises and the Subprime Meltdown

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

Rational expectations forecast errors will on average be and therefore be predicted ahead of time.

Using the Gordon growth formula,if D₁ is $2.00,k_e is 12% or 0.12,and g is 10% or 0.10,then the current stock price is