Question 1

Analysts following what the smart, sophisticated investor is doing would examine

Accepted Answer

A)  mutual fund cash positions. 
B)  debit balances in brokerage houses. 
C)  investment advisory opinions. 
D)  breadth of market. 
E)  stocks above their 200-day moving average. 
A)  mutual fund cash positions. 
B)  debit balances in brokerage houses. 
C)  investment advisory opinions. 
D)  breadth of market. 
E)  stocks above their 200-day moving average. B

Question 2

Calculate the net advance-decline for day 5 using the trade data in the table below.

Accepted Answer

A)  -5,459 
B)  941 
C)  5,459 
D)  6,400 
E)  7,853 
A)  -5,459 
B)  941 
C)  5,459 
D)  6,400 
E)  7,853 D

Question 3

According to contrary opinion technicians, the ratio of mutual funds cash to total assets ____ near troughs in the market cycle and ____ near peaks.

Accepted Answer

A)  levels out, spikes 
B)  remains low, remains high 
C)  is published near, is not published 
D)  increases, decreases 
E)  decreases, increases 
A)  levels out, spikes 
B)  remains low, remains high 
C)  is published near, is not published 
D)  increases, decreases 
E)  decreases, increases D

Question 4

Fusion investing refers to the combination of

Accepted Answer

A)  technical analysis and fundamental analysis. 
B)  behavioral analysis and technical analysis. 
C)  fundamental analysis and investor sentiment. 
D)  technical analysis and investor sentiment. 
E)  behavioral analysis and market anomalies. 
A)  technical analysis and fundamental analysis. 
B)  behavioral analysis and technical analysis. 
C)  fundamental analysis and investor sentiment. 
D)  technical analysis and investor sentiment. 
E)  behavioral analysis and market anomalies.

Question 5

A rise in the Confidence Index published by Barron's is an indication that investors will purchase more lower-quality bonds.

Accepted Answer

A) True 
 B)False

Question 6

Indicators that tell what smart investors are doing include

Accepted Answer

A)  the put/call ratio. 
B)  mutual fund cash position. 
C)  the Dow theory. 
D)  short sales by specialists. 
E)  head and tail indicator. 
A)  the put/call ratio. 
B)  mutual fund cash position. 
C)  the Dow theory. 
D)  short sales by specialists. 
E)  head and tail indicator.

Question 7

Two major classes of technicians include the contrarians and those who "follow the smart money"

Accepted Answer

A) True 
 B)False

Question 8

There is empirical evidence that low P/E stocks have outperformed high P/E stocks for some historical time periods.

Accepted Answer

A) True 
 B)False

Question 9

A "runs test" on successive stock price changes which supports the efficient market hypothesis would show the actual number of runs

Accepted Answer

A)  falls into the range expected of a random series. 
B)  falls into the range expected of a dependent series. 
C)  is small. 
D)  is large. 
E)  would approximate N/2. 
A)  falls into the range expected of a random series. 
B)  falls into the range expected of a dependent series. 
C)  is small. 
D)  is large. 
E)  would approximate N/2.

Question 10

Fama and French examined the relationship between the Book Value to Market Value ratio and average stock returns and found

Accepted Answer

A)  no evidence of a relationship for U.S. stocks. 
B)  evidence of a negative relationship in U.S. stocks only. 
C)  evidence of a positive relationship for Japanese stocks only. 
D)  evidence of a negative relationship for U.S. and Japanese stocks. 
E)  evidence of a positive relationship for U.S. and Japanese stocks. 
A)  no evidence of a relationship for U.S. stocks. 
B)  evidence of a negative relationship in U.S. stocks only. 
C)  evidence of a positive relationship for Japanese stocks only. 
D)  evidence of a negative relationship for U.S. and Japanese stocks. 
E)  evidence of a positive relationship for U.S. and Japanese stocks.

Question 11

A contrary opinion technician would buy stock when mutual funds

Accepted Answer

A)  are at the market peak. 
B)  are fully invested. 
C)  have a cash ratio approaching 4 percent. 
D)  have a cash ratio approaching 7 percent. 
E)  have a cash ratio approaching 11 percent. 
A)  are at the market peak. 
B)  are fully invested. 
C)  have a cash ratio approaching 4 percent. 
D)  have a cash ratio approaching 7 percent. 
E)  have a cash ratio approaching 11 percent.

Question 12

Studies concerning quarterly earnings reports indicate that information in quarterly statements is of value and can provide an above-average, risk-adjusted return.

Accepted Answer

A) True 
 B)False

Question 13

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
   RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5.1. What is the abnormal rate of return for Stock C when you consider its systematic risk measure (beta)?

Accepted Answer

A)  4.0 percent 
B)  1.2 percent 
C)  2.0 percent 
D)  -1.05 percent 
E)  -8.5 percent 
A)  4.0 percent 
B)  1.2 percent 
C)  2.0 percent 
D)  -1.05 percent 
E)  -8.5 percent

Question 14

Which of the following is NOT considered a contrary trading rule?

Accepted Answer

A)  futures traders bullish on stock index futures 
B)  investment advisory opinions 
C)  credit balance in brokerage accounts 
D)  CBOE put/call ratio 
E)  confidence index 
A)  futures traders bullish on stock index futures 
B)  investment advisory opinions 
C)  credit balance in brokerage accounts 
D)  CBOE put/call ratio 
E)  confidence index

Question 15

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
   RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5.2. What is the abnormal rate of return for Stock XYZ when you consider its systematic risk measure (beta)?

Accepted Answer

A)  2.0 percent 
B)  -1.5 percent 
C)  2.4 percent 
D)  1.3 percent 
E)  -3.2 percent 
A)  2.0 percent 
B)  -1.5 percent 
C)  2.4 percent 
D)  1.3 percent 
E)  -3.2 percent

Question 16

In tests of the semistrong-form EMH, it is not necessary to use risk-adjusted rates of return.

Accepted Answer

A) True 
 B)False

Question 17

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
   RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5.6. What is the abnormal rate of return for Stock B when you consider its systematic risk measure (beta)?

Accepted Answer

A)  -0.8 percent 
B)  -1.2 percent 
C)  1.3 percent 
D)  2.4 percent 
E)  6.6 percent 
A)  -0.8 percent 
B)  -1.2 percent 
C)  1.3 percent 
D)  2.4 percent 
E)  6.6 percent

Question 18

An increase in debit balances in brokerage accounts is viewed by technicians as a bullish sign.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following ratios is the most commonly used ratio for predicting the performance of a growth company?

Accepted Answer

A)  PE ratio 
B)  PG ratio 
C)  PEG ratio 
D)  MV/BV ratio 
E)  BV/MV ratio 
A)  PE ratio 
B)  PG ratio 
C)  PEG ratio 
D)  MV/BV ratio 
E)  BV/MV ratio

Question 20

Based on Stock Z's beta of 0.9 the normal return is 9 percent. However, the actual return for Stock Z was 8 percent. What is Stock Z's abnormal rate of return?

Accepted Answer

A)  -1.0 percent 
B)  -0.1 percent 
C)  0.1 percent 
D)  1.0 percent 
E)  1.1 percent 
A)  -1.0 percent 
B)  -0.1 percent 
C)  0.1 percent 
D)  1.0 percent 
E)  1.1 percent

Exam 5: Efficient Capital Markets, Behavioral Finance, and Technical Analysis

Analysts following what the smart, sophisticated investor is doing would examine

Calculate the net advance-decline for day 5 using the trade data in the table below.

According to contrary opinion technicians, the ratio of mutual funds cash to total assets ____ near troughs in the market cycle and ____ near peaks.

Fusion investing refers to the combination of

A rise in the Confidence Index published by Barron's is an indication that investors will purchase more lower-quality bonds.

Indicators that tell what smart investors are doing include

Two major classes of technicians include the contrarians and those who "follow the smart money"

There is empirical evidence that low P/E stocks have outperformed high P/E stocks for some historical time periods.

A "runs test" on successive stock price changes which supports the efficient market hypothesis would show the actual number of runs

Fama and French examined the relationship between the Book Value to Market Value ratio and average stock returns and found

A contrary opinion technician would buy stock when mutual funds

Studies concerning quarterly earnings reports indicate that information in quarterly statements is of value and can provide an above-average, risk-adjusted return.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Rit = return for stock i during period t Rmt = return for the aggregate market during period t -Refer to Exhibit 5.1. What is the abnormal rate of return for Stock C when you consider its systematic risk measure (beta)?

Which of the following is NOT considered a contrary trading rule?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Rit = return for stock i during period t Rmt = return for the aggregate market during period t -Refer to Exhibit 5.2. What is the abnormal rate of return for Stock XYZ when you consider its systematic risk measure (beta)?

In tests of the semistrong-form EMH, it is not necessary to use risk-adjusted rates of return.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Rit = return for stock i during period t Rmt = return for the aggregate market during period t -Refer to Exhibit 5.6. What is the abnormal rate of return for Stock B when you consider its systematic risk measure (beta)?

An increase in debit balances in brokerage accounts is viewed by technicians as a bullish sign.

Which of the following ratios is the most commonly used ratio for predicting the performance of a growth company?

Based on Stock Z's beta of 0.9 the normal return is 9 percent. However, the actual return for Stock Z was 8 percent. What is Stock Z's abnormal rate of return?

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

According to contrary opinion technicians, the ratio of mutual funds cash to total assets near troughs in the market cycle and near peaks.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) R_it = return for stock i during period t R_mt = return for the aggregate market during period t -Refer to Exhibit 5.1. What is the abnormal rate of return for Stock C when you consider its systematic risk measure (beta)?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) R_it = return for stock i during period t R_mt = return for the aggregate market during period t -Refer to Exhibit 5.2. What is the abnormal rate of return for Stock XYZ when you consider its systematic risk measure (beta)?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) R_it = return for stock i during period t R_mt = return for the aggregate market during period t -Refer to Exhibit 5.6. What is the abnormal rate of return for Stock B when you consider its systematic risk measure (beta)?