Question 1

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. D

Question 2

The average serial correlation,which indicates if there is a relationship between yesterday's return and today's return for the 100 largest companies is

Accepted Answer

A) positive,and large 
B) not possible to calculate 
C) zero 
D) positive,but small 
E) negative,but small 
A) positive,and large 
B) not possible to calculate 
C) zero 
D) positive,but small 
E) negative,but small E

Question 3

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. A

Question 4

Suppose your cousin invests in the stock market and doubles her money in a single year while the market,on average,earned a return of only about 15%.Is your cousin's performance a violation of market efficiency?

Accepted Answer

No,market efficiency does not preclude i

Question 5

Which form of the efficient market hypothesis implies that security prices reflect only information contained in past prices?

Accepted Answer

A) Weak form 
B) Semistrong form 
C) Strong form 
D) Hard form 
E) Past form 
A) Weak form 
B) Semistrong form 
C) Strong form 
D) Hard form 
E) Past form

Question 6

If the financial markets are efficient,then investors should expect their investments in those markets to:

Accepted Answer

A) earn extraordinary returns on a routine basis. 
B) generally have positive net present values. 
C) generally have zero net present values. 
D) produce arbitrage opportunities on a routine basis. 
E) produce negative returns on a routine basis. 
A) earn extraordinary returns on a routine basis. 
B) generally have positive net present values. 
C) generally have zero net present values. 
D) produce arbitrage opportunities on a routine basis. 
E) produce negative returns on a routine basis.

Question 7

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 8

The hypothesis that market prices reflect all available information of every kind 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 9

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.

Question 10

When the stock price follows a random walk,the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

Accepted Answer

A) a predictable amount based on the past prices. 
B) a component based on new information unrelated to past prices. 
C) the security's risk. 
D) the risk free rate. 
E) None of the above. 
A) a predictable amount based on the past prices. 
B) a component based on new information unrelated to past prices. 
C) the security's risk. 
D) the risk free rate. 
E) None of the above.

Question 11

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise.This contrary evidence happens because:

Accepted Answer

A) markets are inefficient and unsure of the real value of the events. 
B) death is inevitable and market prices are random. 
C) things simply happen. 
D) the value of the founding executive was a negative to the firm. 
E) None of the above. 
A) markets are inefficient and unsure of the real value of the events. 
B) death is inevitable and market prices are random. 
C) things simply happen. 
D) the value of the founding executive was a negative to the firm. 
E) None of the above.

Question 12

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 13

Market efficiency says:

Accepted Answer

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

Question 14

An investor discovers that predictions about weather patterns published years in advance and found in the Farmer's Almanac are amazingly accurate.In fact,these predictions enable the investor to predict the health of the farm economy and therefore certain security prices.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.

Question 15

Financial managers must be cognizant of market efficiency because:

Accepted Answer

A) manipulating earnings by accounting changes does not fool the market. 
B) timing security sales is futile because without private information the current price reflects all known information. 
C) there is limited price pressure from any large sale of stock depressing prices only momentarily before recovering to prior levels. 
D) All of the above. 
E) None of the above. 
A) manipulating earnings by accounting changes does not fool the market. 
B) timing security sales is futile because without private information the current price reflects all known information. 
C) there is limited price pressure from any large sale of stock depressing prices only momentarily before recovering to prior levels. 
D) All of the above. 
E) None of the above.

Question 16

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 17

In examining the issue of whether the choice of accounting methods affects stock prices,studies have found that:

Accepted Answer

A) accounting depreciation methods can significantly affect stock prices. 
B) switching depreciation methods can significantly affect stock prices. 
C) accounting changes that increase accounting earnings also increases stock prices. 
D) accounting changes can affect stock prices if the company were either to withhold information or provide incorrect information. 
E) All of the above. 
A) accounting depreciation methods can significantly affect stock prices. 
B) switching depreciation methods can significantly affect stock prices. 
C) accounting changes that increase accounting earnings also increases stock prices. 
D) accounting changes can affect stock prices if the company were either to withhold information or provide incorrect information. 
E) All of the above.

Question 18

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages.He finds that he can "beat the market" by short-selling the stock of the firm that will be sued.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.

Question 19

Event studies have been used to examine:

Accepted Answer

A) IPOs,SEOs,and other equity issuances. 
B) changes in earnings. 
C) mergers and acquisitions. 
D) most financial events. 
E) All of the above. 
A) IPOs,SEOs,and other equity issuances. 
B) changes in earnings. 
C) mergers and acquisitions. 
D) most financial events. 
E) All of the above.

Question 20

Strong form market efficiency

Accepted Answer

A) accurately reflects all information,both public and private 
B) only accurately reflects private information 
C) reflects only public information 
D) implies weak form market inefficiency 
E) implies semi-strong form market inefficiency 
A) accurately reflects all information,both public and private 
B) only accurately reflects private information 
C) reflects only public information 
D) implies weak form market inefficiency 
E) implies semi-strong form market inefficiency

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 average serial correlation,which indicates if there is a relationship between yesterday's return and today's return for the 100 largest companies is

Which of the following is not true about serial correlation?

Suppose your cousin invests in the stock market and doubles her money in a single year while the market,on average,earned a return of only about 15%.Is your cousin's performance a violation of market efficiency?

Which form of the efficient market hypothesis implies that security prices reflect only information contained in past prices?

If the financial markets are efficient,then investors should expect their investments in those markets to:

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

The hypothesis that market prices reflect all available information of every kind is called _____ form efficiency.

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

When the stock price follows a random walk,the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise.This contrary evidence happens because:

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

Market efficiency says:

Financial managers must be cognizant of market efficiency because:

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

In examining the issue of whether the choice of accounting methods affects stock prices,studies have found that:

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages.He finds that he can "beat the market" by short-selling the stock of the firm that will be sued.This finding is a violation of the:

Event studies have been used to examine:

Strong form market efficiency

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Net Present Value and Other Investment Rules

Interest Rates and Bond 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

Long-Term Financing: an Introduction

Raising Capital

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

International Corporate Finance

Filters

Exam 14: Efficient Capital Markets and Behavioral Challenges

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 average serial correlation,which indicates if there is a relationship between yesterday's return and today's return for the 100 largest companies is

Which of the following is not true about serial correlation?

Suppose your cousin invests in the stock market and doubles her money in a single year while the market,on average,earned a return of only about 15%.Is your cousin's performance a violation of market efficiency?

Which form of the efficient market hypothesis implies that security prices reflect only information contained in past prices?

If the financial markets are efficient,then investors should expect their investments in those markets to:

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

The hypothesis that market prices reflect all available information of every kind is called _____ form efficiency.

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

When the stock price follows a random walk,the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise.This contrary evidence happens because:

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

Market efficiency says:

Financial managers must be cognizant of market efficiency because:

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

In examining the issue of whether the choice of accounting methods affects stock prices,studies have found that:

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages.He finds that he can "beat the market" by short-selling the stock of the firm that will be sued.This finding is a violation of the:

Event studies have been used to examine:

Strong form market efficiency

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Net Present Value and Other Investment Rules

Interest Rates and Bond 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

Long-Term Financing: an Introduction

Raising Capital

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

International Corporate Finance

Filters