Question 1

In the five years after the offering,___ underperform matched control groups.

Accepted Answer

A) initial public offerings 
B) seasoned equity offerings 
C) bond offerings 
D) A and B 
E) A,B,and C 
A) initial public offerings 
B) seasoned equity offerings 
C) bond offerings 
D) A and B 
E) A,B,and C

Question 2

An investor discovers that for a certain group of stocks,large positive price changes are always followed by large negative price changes.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 3

In the three years prior to a forced departure of management,stock prices,adjusted for market performance,on average will:

Accepted Answer

A) decline about 20%. 
B) decline about 40%. 
C) decline about 60%. 
D) remain stable. 
E) increase about 20%. 
A) decline about 20%. 
B) decline about 40%. 
C) decline about 60%. 
D) remain stable. 
E) increase about 20%.

Question 4

Event studies attempt to measure:

Accepted Answer

A) the influence of information released to the market on returns in days surrounding its announcement. 
B) if the market is at least semistrong form efficient. 
C) whether there is a significant reaction to public announcements. 
D) All of the above. 
E) None of the above. 
A) the influence of information released to the market on returns in days surrounding its announcement. 
B) if the market is at least semistrong form efficient. 
C) whether there is a significant reaction to public announcements. 
D) All of the above. 
E) None of the above.

Question 5

The abnormal return in an event study is described as:

Accepted Answer

A) the return earned on the day of announcement for the stock. 
B) the excess return earned on the day of announcement for the stock. 
C) the total return earned for the investment holding period. 
D) All of the above. 
E) None of the above. 
A) the return earned on the day of announcement for the stock. 
B) the excess return earned on the day of announcement for the stock. 
C) the total return earned for the investment holding period. 
D) All of the above. 
E) None of the above.

Question 6

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV,the price of the stock will:

Accepted Answer

A) rise gradually over the next few days. 
B) decline gradually over the next few days. 
C) rise on the same day to the new price. 
D) stay at the same price,with no net effect. 
E) drop on the same day to the new price. 
A) rise gradually over the next few days. 
B) decline gradually over the next few days. 
C) rise on the same day to the new price. 
D) stay at the same price,with no net effect. 
E) drop on the same day to the new price.

Question 7

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 8

In an efficient market,the price of a security will:

Accepted Answer

A) always rise immediately upon the release of new information with no further price adjustments related to that information. 
B) react to new information over a two-day period after which time no further price adjustments related to that information will occur. 
C) rise sharply when new information is first released and then decline to a new stable level by the following day. 
D) react immediately to new information with no further price adjustments related to that information. 
E) be slow to react for the first few hours after new information is released allowing time for that information to be reviewed and analyzed. 
A) always rise immediately upon the release of new information with no further price adjustments related to that information. 
B) react to new information over a two-day period after which time no further price adjustments related to that information will occur. 
C) rise sharply when new information is first released and then decline to a new stable level by the following day. 
D) react immediately to new information with no further price adjustments related to that information. 
E) be slow to react for the first few hours after new information is released allowing time for that information to be reviewed and analyzed.

Question 9

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.

Question 10

The notion that actual capital markets,such as the NYSE,are fairly priced is called the:

Accepted Answer

A) Efficient Markets Hypothesis (EMH). 
B) Law of One Price. 
C) Open Markets Theorem. 
D) Laissez-Faire Axiom. 
E) Monopoly Pricing Theorem. 
A) Efficient Markets Hypothesis (EMH). 
B) Law of One Price. 
C) Open Markets Theorem. 
D) Laissez-Faire Axiom. 
E) Monopoly Pricing Theorem.

Question 11

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 12

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 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

Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?

Accepted Answer

Good answers to this question might indi

Question 15

Which of the following tend to reinforce the argument that the financial markets are efficient?
I.Information spreads rapidly in today's world.
II.There is tremendous competition in the financial markets.
III.Market prices continually fluctuate.
IV.Market prices react suddenly to unexpected news announcements.

Accepted Answer

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

Question 16

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 17

Which of the following statements is true?

Accepted Answer

A) In efficient markets,a stock's price should change with the arrival of new information. 
B) Average stock returns are higher in January than other months. 
C) Studies by Fama and French and others find that returns of high book to market stocks are much higher than low book to market value stocks to be consistent with the efficient market hypothesis. 
D) All of the above. 
E) None of the above. 
A) In efficient markets,a stock's price should change with the arrival of new information. 
B) Average stock returns are higher in January than other months. 
C) Studies by Fama and French and others find that returns of high book to market stocks are much higher than low book to market value stocks to be consistent with the efficient market hypothesis. 
D) All of the above. 
E) None of the above.

Question 18

An efficient capital market is one in which:

Accepted Answer

A) brokerage commissions are zero. 
B) taxes are irrelevant. 
C) securities always offer a positive rate of return to investors. 
D) security prices are guaranteed by the U.S.Securities and Exchange Commission to be fair. 
E) security prices reflect available information. 
A) brokerage commissions are zero. 
B) taxes are irrelevant. 
C) securities always offer a positive rate of return to investors. 
D) security prices are guaranteed by the U.S.Securities and Exchange Commission to be fair. 
E) security prices reflect available information.

Question 19

If the market is weak form efficient:

Accepted Answer

A) semistrong form efficiency holds. 
B) strong form efficiency must hold. 
C) semistrong form efficiency may hold. 
D) markets are not weak form efficient. 
E) None of the above. 
A) semistrong form efficiency holds. 
B) strong form efficiency must hold. 
C) semistrong form efficiency may hold. 
D) markets are not weak form efficient. 
E) None of the above.

Question 20

Under the concept of an efficient market,a random walk in stock prices means that:

Accepted Answer

A) there is no driving force behind price changes. 
B) technical analysts can predict future price movements to earn excess returns. 
C) the unexplained portion of price change in one period is unrelated to the unexplained portion of price change in any other period. 
D) the unexplained portion of price change in one period that cannot be explained by expected return can only be explained by the unexplained portion of price change in a prior period. 
E) None of the above. 
A) there is no driving force behind price changes. 
B) technical analysts can predict future price movements to earn excess returns. 
C) the unexplained portion of price change in one period is unrelated to the unexplained portion of price change in any other period. 
D) the unexplained portion of price change in one period that cannot be explained by expected return can only be explained by the unexplained portion of price change in a prior period. 
E) None of the above.

In the five years after the offering,___ underperform matched control groups.

An investor discovers that for a certain group of stocks,large positive price changes are always followed by large negative price changes.This finding is a violation of the:

In the three years prior to a forced departure of management,stock prices,adjusted for market performance,on average will:

Event studies attempt to measure:

The abnormal return in an event study is described as:

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV,the price of the stock will:

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?

In an efficient market,the price of a security will:

Efficient capital markets are financial markets:

The notion that actual capital markets,such as the NYSE,are fairly priced is called the:

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

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

If the weak form of efficient markets holds,then:

Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?

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.

Which of the following statements is true?

An efficient capital market is one in which:

If the market is weak form efficient:

Under the concept of an efficient market,a random walk in stock prices means that:

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

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Exam 14: Efficient Capital Markets and Behavioral Challenges

In the five years after the offering,___ underperform matched control groups.

An investor discovers that for a certain group of stocks,large positive price changes are always followed by large negative price changes.This finding is a violation of the:

In the three years prior to a forced departure of management,stock prices,adjusted for market performance,on average will:

Event studies attempt to measure:

The abnormal return in an event study is described as:

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV,the price of the stock will:

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?

In an efficient market,the price of a security will:

Efficient capital markets are financial markets:

The notion that actual capital markets,such as the NYSE,are fairly priced is called the:

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

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

If the weak form of efficient markets holds,then:

Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?

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.

Which of the following statements is true?

An efficient capital market is one in which:

If the market is weak form efficient:

Under the concept of an efficient market,a random walk in stock prices means that:

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