Question 1

Individuals that continually monitor the financial markets seeking mispriced securities:

Accepted Answer

A) tend to make substantial profits on a daily basis. 
B) tend to make the markets more efficient. 
C) are never able to find a security that is temporarily mispriced. 
D) are always quite successful using only well-known public information as their basis of evaluation. 
E) are always quite successful using only historical price information as their basis of evaluation. 
A) tend to make substantial profits on a daily basis. 
B) tend to make the markets more efficient. 
C) are never able to find a security that is temporarily mispriced. 
D) are always quite successful using only well-known public information as their basis of evaluation. 
E) are always quite successful using only historical price information as their basis of evaluation.

Question 2

Explain why it is that in an efficient market,investments have an expected NPV of zero.

Accepted Answer

In an efficient market,prices are "fair"

Question 3

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

Question 4

Ritter's study of Initial Public Offerings (IPOs)showed that the post offering stock performance was:

Accepted Answer

A) less than the control group by about 2% in the five years following the IPO. 
B) incorrectly priced at issuance because over the next five years the abnormal returns were greater than zero on average. 
C) immaterial to the pricing of the IPO because future market performance is unknown at issuance. 
D) equal across IPOs,irrespective of risk or which year they were issued. 
E) All of the above. 
A) less than the control group by about 2% in the five years following the IPO. 
B) incorrectly priced at issuance because over the next five years the abnormal returns were greater than zero on average. 
C) immaterial to the pricing of the IPO because future market performance is unknown at issuance. 
D) equal across IPOs,irrespective of risk or which year they were issued. 
E) All of the above.

Question 5

Insider trading does not offer any advantages if the financial markets are:

Accepted Answer

A) weak form efficient. 
B) semiweak form efficient. 
C) semistrong form efficient. 
D) strong form efficient. 
E) inefficient. 
A) weak form efficient. 
B) semiweak form efficient. 
C) semistrong form efficient. 
D) strong form efficient. 
E) inefficient.

Question 6

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 7

Suppose that firms with unexpectedly high earnings earn abnormally high returns for several months after the announcement.This would be evidence of:

Accepted Answer

A) efficient markets in the weak form. 
B) inefficient markets in the weak form. 
C) efficient markets in the semistrong form. 
D) inefficient markets in the semistrong form. 
E) inefficient markets in the strong form. 
A) efficient markets in the weak form. 
B) inefficient markets in the weak form. 
C) efficient markets in the semistrong form. 
D) inefficient markets in the semistrong form. 
E) inefficient markets in the strong form.

Question 8

The market price of a stock moves or fluctuates daily.This fluctuation is:

Accepted Answer

A) inconsistent with the semistrong efficient market hypothesis because prices should be stable. 
B) inconsistent with the weak form efficient market hypothesis because all past information should be priced in. 
C) consistent with the semistrong form of the efficient market hypothesis because as new information arrives daily prices will adjust to it. 
D) consistent with the strong form because prices are controlled by insiders. 
E) None of the above. 
A) inconsistent with the semistrong efficient market hypothesis because prices should be stable. 
B) inconsistent with the weak form efficient market hypothesis because all past information should be priced in. 
C) consistent with the semistrong form of the efficient market hypothesis because as new information arrives daily prices will adjust to it. 
D) consistent with the strong form because prices are controlled by insiders. 
E) None of the above.

Question 9

The hypothesis that market prices reflect all publicly available 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

Your best friend works in the finance office of the Delta Corporation.You are aware that this friend trades Delta stock based on information he overhears in the office.You know that this information is not known to the general public.Your friend continually brags to you about the profits he earns trading Delta stock.Based on this information,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

Individuals that continually monitor the financial markets seeking mispriced securities:

Explain why it is that in an efficient market,investments have an expected NPV of zero.

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.

Ritter's study of Initial Public Offerings (IPOs)showed that the post offering stock performance was:

Insider trading does not offer any advantages if the financial markets are:

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

Suppose that firms with unexpectedly high earnings earn abnormally high returns for several months after the announcement.This would be evidence of:

The market price of a stock moves or fluctuates daily.This fluctuation is:

The hypothesis that market prices reflect all publicly available information is called _____ form 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

Individuals that continually monitor the financial markets seeking mispriced securities:

Explain why it is that in an efficient market,investments have an expected NPV of zero.

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.

Ritter's study of Initial Public Offerings (IPOs)showed that the post offering stock performance was:

Insider trading does not offer any advantages if the financial markets are:

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

Suppose that firms with unexpectedly high earnings earn abnormally high returns for several months after the announcement.This would be evidence of:

The market price of a stock moves or fluctuates daily.This fluctuation is:

The hypothesis that market prices reflect all publicly available information is called _____ form 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