Question 1

If the financial markets are __________ efficient, then laws prohibiting insider trading are unnecessary.

Accepted Answer

A)  mild-form 
B)  weak-form 
C)  historical-form 
D)  semi-strong form 
E)  strong-form 
A)  mild-form 
B)  weak-form 
C)  historical-form 
D)  semi-strong form 
E)  strong-form

Question 2

A market in which information of any kind, public or private, is of no use in beating the market is __________ -form efficient.

Accepted Answer

A)  weak 
B)  semi-weak 
C)  semistrong 
D)  strong 
E)  technical 
A)  weak 
B)  semi-weak 
C)  semistrong 
D)  strong 
E)  technical

Question 3

Over the time period of 1929 to 1932, the stock market lost approximately __________ percent of its value.

Accepted Answer

A)  25 
B)  33 
C)  50 
D)  75 
E)  90 
A)  25 
B)  33 
C)  50 
D)  75 
E)  90

Question 4

Which of the following preceded the Asian stock market crash?
I. substantial stock price increases
II. substantial increases in real estate values
III. U.S. Crash of 1987
IV. growing Japanese market pessimism

Accepted Answer

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

Question 5

When a stock price fluctuates, but follows no discernible pattern of movement over time, the stock price is said to be a(n)

Accepted Answer

A)  Deviated pattern 
B)  Dispersed flow 
C)  Efficient movement 
D)  Overreaction and correction 
E)  Random walk 
A)  Deviated pattern 
B)  Dispersed flow 
C)  Efficient movement 
D)  Overreaction and correction 
E)  Random walk

Question 6

You are the chief financial officer of GOL Industries. On multiple occasions, you have engaged in insider trading but have never been able to earn any abnormal returns. Which form of market efficiency most likely exists given your situation?

Accepted Answer

A)  Mild-form 
B)  weak-form 
C)  historical-form 
D)  Semi-strong form 
E)  strong-form 
A)  Mild-form 
B)  weak-form 
C)  historical-form 
D)  Semi-strong form 
E)  strong-form

Question 7

Which of the following are ineffective strategies for producing excess returns if the market is strong-form efficient?
I. graphing past prices searching for patterns
II. developing strategic relationships to gain pertinent inside information
III. studying the latest analyst's reports
IV. analyzing a firm's financial statements

Accepted Answer

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

Question 8

If the stock market is efficient, then stocks with similar risks will

Accepted Answer

A)  Be priced similarly 
B)  Pay similar dividends 
C)  Produce excess returns 
D)  Produce abnormal returns 
E)  Have similar rates of returns 
A)  Be priced similarly 
B)  Pay similar dividends 
C)  Produce excess returns 
D)  Produce abnormal returns 
E)  Have similar rates of returns

Question 9

The value of the Amex Internet Index increased by about __________ percent from October 1998 to March 2000 and subsequently declined by about __________ by October 2002.

Accepted Answer

A)  100; 50 
B)  200; 75 
C)  400; 60 
D)  500; 90 
E)  600; 80 
A)  100; 50 
B)  200; 75 
C)  400; 60 
D)  500; 90 
E)  600; 80

Question 10

Strong-form market efficiency implies that __________ information is reflected in market prices.

Accepted Answer

A)  only past price 
B)  all past, present, and future 
C)  both private and public 
D)  public, but not private, 
E)  financial, but not economic, 
A)  only past price 
B)  all past, present, and future 
C)  both private and public 
D)  public, but not private, 
E)  financial, but not economic,

Question 11

Which one of the following relates to the relevant information problem encountered when testing market efficiency?

Accepted Answer

A)  ascertaining how historical prices relate to current stock prices 
B)  determining whether a market reaction was appropriate or overstated 
C)  correctly estimating the risk level of a security 
D)  determining what undocumented information existed on any particular trading day 
E)  identifying patterns that occur over time in the pricing of a particular security 
A)  ascertaining how historical prices relate to current stock prices 
B)  determining whether a market reaction was appropriate or overstated 
C)  correctly estimating the risk level of a security 
D)  determining what undocumented information existed on any particular trading day 
E)  identifying patterns that occur over time in the pricing of a particular security

Question 12

The difference between what an investment earned and the return on other investments with the same level of risk is known as the _________ return.

Accepted Answer

A)  Excess 
B)  Market 
C)  Superior 
D)  Top 
E)  Strong 
A)  Excess 
B)  Market 
C)  Superior 
D)  Top 
E)  Strong

Question 13

Which day of the week has historically had the highest return?

Accepted Answer

A)  Monday 
B)  Tuesday 
C)  Wednesday 
D)  Thursday 
E)  Friday 
A)  Monday 
B)  Tuesday 
C)  Wednesday 
D)  Thursday 
E)  Friday

Question 14

If you believe that stock market prices follow a random walk, then:

Accepted Answer

A)  historical price information provides no benefit in predicting future prices. 
B)  there is no financial benefit from investing in the stock market. 
C)  having inside information will not lead to excess profits. 
D)  studying past price movements will lead to excess profits. 
E)  you also believe the market is strong-form efficient. 
A)  historical price information provides no benefit in predicting future prices. 
B)  there is no financial benefit from investing in the stock market. 
C)  having inside information will not lead to excess profits. 
D)  studying past price movements will lead to excess profits. 
E)  you also believe the market is strong-form efficient.

Question 15

Jennifer is the CFO of a major chemical firm. She has 35,000 shares of the firm's stock and wishes to sell 50 percent of those shares to diversify her holdings. She follows both her firm's and the OSC's guidelines and proceeds with the sale of 17,500 shares. Within a week of her sale, the price of her firm's stock declines by 40 percent. Jennifer's stock trade is:

Accepted Answer

A)  subject only to fines and penalties under the insider trading laws. 
B)  illegal and could subject her to jail time. 
C)  legal. 
D)  subject to reversal by the OSC. 
E)  subject to a forfeiture of her profits to the OSC. 
A)  subject only to fines and penalties under the insider trading laws. 
B)  illegal and could subject her to jail time. 
C)  legal. 
D)  subject to reversal by the OSC. 
E)  subject to a forfeiture of her profits to the OSC.

Question 16

The hypothesis that investors cannot consistently earn positive excess returns is known as the __________ hypothesis.

Accepted Answer

A)  Technical analysis 
B)  Market efficiency 
C)  Risk-return 
D)  Fundamental analysis 
E)  Market breadth 
A)  Technical analysis 
B)  Market efficiency 
C)  Risk-return 
D)  Fundamental analysis 
E)  Market breadth

Question 17

Which one of the following is probably your best investment strategy as long as the market is at least semi-strong form efficient?

Accepted Answer

A)  invest based on the advice of a technical analyst 
B)  invest based on the advice of a fundamental analyst 
C)  invest only in your employer's firm 
D)  invest in an index fund 
E)  invest in a value fund which is actively managed by a professional money manager 
A)  invest based on the advice of a technical analyst 
B)  invest based on the advice of a fundamental analyst 
C)  invest only in your employer's firm 
D)  invest in an index fund 
E)  invest in a value fund which is actively managed by a professional money manager

Question 18

If the DJIA falls by 30 percent, the NYSE will:

Accepted Answer

A)  stop trading for two hours. 
B)  stop trading for two hours if the decline occurs before 1 P.M. 
C)  stop trading for three hours. 
D)  stop trading for two hours if the decline occurs after 12 P.M. 
E)  cease trading for the day. 
A)  stop trading for two hours. 
B)  stop trading for two hours if the decline occurs before 1 P.M. 
C)  stop trading for three hours. 
D)  stop trading for two hours if the decline occurs after 12 P.M. 
E)  cease trading for the day.

Question 19

Stocks A, B, and C have identical risks. Stock A earns an annual return of 9.9 percent as compared to 9.6 percent returns on stocks B and C. Given this, you can correctly assume that:

Accepted Answer

A)  Stock A is overpriced. 
B)  the market return is 9.75 percent. 
C)  Stock A represents the smallest-sized firm. 
D)  Stock A has a positive excess return. 
E)  Stocks B and C represent firms that are in the process of merging. 
A)  Stock A is overpriced. 
B)  the market return is 9.75 percent. 
C)  Stock A represents the smallest-sized firm. 
D)  Stock A has a positive excess return. 
E)  Stocks B and C represent firms that are in the process of merging.

Question 20

A market in which publicly available information is of no use in beating the market is __________ -form efficient.

Accepted Answer

A)  weak 
B)  semi-weak 
C)  semistrong 
D)  strong 
E)  technical 
A)  weak 
B)  semi-weak 
C)  semistrong 
D)  strong 
E)  technical

If the financial markets are __________ efficient, then laws prohibiting insider trading are unnecessary.

A market in which information of any kind, public or private, is of no use in beating the market is __________ -form efficient.

Over the time period of 1929 to 1932, the stock market lost approximately __________ percent of its value.

Which of the following preceded the Asian stock market crash? I. substantial stock price increases II. substantial increases in real estate values III. U.S. Crash of 1987 IV. growing Japanese market pessimism

When a stock price fluctuates, but follows no discernible pattern of movement over time, the stock price is said to be a(n)

You are the chief financial officer of GOL Industries. On multiple occasions, you have engaged in insider trading but have never been able to earn any abnormal returns. Which form of market efficiency most likely exists given your situation?

If the stock market is efficient, then stocks with similar risks will

The value of the Amex Internet Index increased by about percent from October 1998 to March 2000 and subsequently declined by about by October 2002.

Strong-form market efficiency implies that __________ information is reflected in market prices.

Which one of the following relates to the relevant information problem encountered when testing market efficiency?

The difference between what an investment earned and the return on other investments with the same level of risk is known as the _________ return.

Which day of the week has historically had the highest return?

If you believe that stock market prices follow a random walk, then:

The hypothesis that investors cannot consistently earn positive excess returns is known as the __________ hypothesis.

Which one of the following is probably your best investment strategy as long as the market is at least semi-strong form efficient?

If the DJIA falls by 30 percent, the NYSE will:

Stocks A, B, and C have identical risks. Stock A earns an annual return of 9.9 percent as compared to 9.6 percent returns on stocks B and C. Given this, you can correctly assume that:

A market in which publicly available information is of no use in beating the market is __________ -form efficient.

A Brief History of Risk and Return

Diversification and Risky Asset Allocation

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Behavioural Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk and Security Management

Performance Evaluation and Risk Management

Options

Option Valuation

Futures Contracts

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds and Mortgaged-Backed Securities

International Portfolio Investment

Filters

Exam 8: Stock Price Behaviour and Market Efficiency

If the financial markets are __________ efficient, then laws prohibiting insider trading are unnecessary.

A market in which information of any kind, public or private, is of no use in beating the market is __________ -form efficient.

Over the time period of 1929 to 1932, the stock market lost approximately __________ percent of its value.

Which of the following preceded the Asian stock market crash? I. substantial stock price increases II. substantial increases in real estate values III. U.S. Crash of 1987 IV. growing Japanese market pessimism

When a stock price fluctuates, but follows no discernible pattern of movement over time, the stock price is said to be a(n)

You are the chief financial officer of GOL Industries. On multiple occasions, you have engaged in insider trading but have never been able to earn any abnormal returns. Which form of market efficiency most likely exists given your situation?

If the stock market is efficient, then stocks with similar risks will

The value of the Amex Internet Index increased by about __________ percent from October 1998 to March 2000 and subsequently declined by about __________ by October 2002.

Strong-form market efficiency implies that __________ information is reflected in market prices.

Which one of the following relates to the relevant information problem encountered when testing market efficiency?

The difference between what an investment earned and the return on other investments with the same level of risk is known as the _________ return.

Which day of the week has historically had the highest return?

If you believe that stock market prices follow a random walk, then:

The hypothesis that investors cannot consistently earn positive excess returns is known as the __________ hypothesis.

Which one of the following is probably your best investment strategy as long as the market is at least semi-strong form efficient?

If the DJIA falls by 30 percent, the NYSE will:

Stocks A, B, and C have identical risks. Stock A earns an annual return of 9.9 percent as compared to 9.6 percent returns on stocks B and C. Given this, you can correctly assume that:

A market in which publicly available information is of no use in beating the market is __________ -form efficient.

A Brief History of Risk and Return

Diversification and Risky Asset Allocation

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Behavioural Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk and Security Management

Performance Evaluation and Risk Management

Options

Option Valuation

Futures Contracts

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds and Mortgaged-Backed Securities

International Portfolio Investment

Filters

The value of the Amex Internet Index increased by about percent from October 1998 to March 2000 and subsequently declined by about by October 2002.