Question 1

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. C

Question 2

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

Question 3

Efficient capital markets are financial markets:

Accepted Answer

A) in which current market prices reflect available information. 
B) in which current market prices reflect the present value of securities. 
C) in which there is no excess profit from using available information. 
D) All of the above. 
E) None of the above. 
A) in which current market prices reflect available information. 
B) in which current market prices reflect the present value of securities. 
C) in which there is no excess profit from using available information. 
D) All of the above. 
E) None of the above. D

Question 4

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

Accepted Answer

A) semistrong form 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 form 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 5

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

Accepted Answer

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

Question 6

Do you think the lessons from capital market history will hold for each year in the future?
That is, as an example, if you buy small stocks will your investment always outperform
U.S.Treasury bonds?

Accepted Answer

The student should realize that we are w

Question 7

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 8

According to the efficient market hypothesis, financial markets fluctuate daily because they:

Accepted Answer

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

Question 9

The hypothesis that market prices reflect all historical information is called _____ form efficiency.

Accepted Answer

A) open 
B) strong 
C) semistrong 
D) weak 
E) stable 
A) open 
B) strong 
C) semistrong 
D) weak 
E) stable

Question 10

Which of the following is not true about serial correlation?

Accepted Answer

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

Question 11

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

Accepted Answer

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

Question 12

According to theory, studying historical prices in order to identify mispriced stocks will not work in markets that are _____ efficient.
I.weak form
II.semistrong form
III.strong form

Accepted Answer

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

Question 13

If the weak form of efficient markets holds, 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 14

Financial managers can create value through financing decisions that:

Accepted Answer

A) reduce costs or increase subsidies. 
B) increase the product prices. 
C) create a new security. 
D) Both A and B. 
E) Both A and C. 
A) reduce costs or increase subsidies. 
B) increase the product prices. 
C) create a new security. 
D) Both A and B. 
E) Both A and C.

Question 15

If the securities market is efficient, an investor need only throw darts at the stock pages to pick securities and be just as well off.

Accepted Answer

A) This is true because there are no differences in risk and return. 
B) This is true because in an efficient stock market prices do not fluctuate. 
C) This is false because professional portfolio managers prefer to generate commissions by active trading. 
D) This is false because investors may not hold a desirable risk-return combination in their portfolio. 
E) This is false because the markets are controlled by the institutional investors. 
A) This is true because there are no differences in risk and return. 
B) This is true because in an efficient stock market prices do not fluctuate. 
C) This is false because professional portfolio managers prefer to generate commissions by active trading. 
D) This is false because investors may not hold a desirable risk-return combination in their portfolio. 
E) This is false because the markets are controlled by the institutional investors.

Question 16

The semistrong form of the efficient market hypothesis states that:

Accepted Answer

A) all information is reflected in the price of securities. 
B) security prices reflect all publicly available information. 
C) future prices are predictable. 
D) Both A and C. 
E) None of the above. 
A) all information is reflected in the price of securities. 
B) security prices reflect all publicly available information. 
C) future prices are predictable. 
D) Both A and C. 
E) None of the above.

Question 17

Market efficiency says:

Accepted Answer

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

Question 18

The following time period(s) is/are consistent with the bubble theory:

Accepted Answer

A) the stock market crash of 1929. 
B) the stock market crash of 1972. 
C) the stock market crash of 1987. 
D) A and C. 
E) A, B, and C. 
A) the stock market crash of 1929. 
B) the stock market crash of 1972. 
C) the stock market crash of 1987. 
D) A and C. 
E) A, B, and C.

Question 19

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

Question 20

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.

Exam 14: Efficient Capital Markets and Behavioral Challenges

Which of the following is true?

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.

Efficient capital markets are financial markets:

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

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

Do you think the lessons from capital market history will hold for each year in the future? That is, as an example, if you buy small stocks will your investment always outperform U.S.Treasury bonds?

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

According to the efficient market hypothesis, financial markets fluctuate daily because they:

The hypothesis that market prices reflect all historical information is called _____ form efficiency.

Which of the following is not true about serial correlation?

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

According to theory, studying historical prices in order to identify mispriced stocks will not work in markets that are _____ efficient. I.weak form II.semistrong form III.strong form

If the weak form of efficient markets holds, then:

Financial managers can create value through financing decisions that:

If the securities market is efficient, an investor need only throw darts at the stock pages to pick securities and be just as well off.

The semistrong form of the efficient market hypothesis states that:

Market efficiency says:

The following time period(s) is/are consistent with the bubble theory:

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.

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

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, Cost of Capital, and Capital Budgeting

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Issuing Securities to the Public

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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