Question 1

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

Accepted Answer

A) react immediately to 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) always rise immediately upon the release of 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) react immediately to 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) always rise immediately upon the release of 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 2

ALLGO announced at Time t that it was acquiring DoLittle Industries.There were no other announcements affecting these firms.ALLGO's stock had daily returns of -.2,+.1,-.5,-.1,+.1 for Time t - 2 to Time t + 2,respectively.The daily returns on the market were -.1,+.2,+.1,-.2,and +.2 for Time t - 2 to Time t + 2,respectively.What is the cumulative abnormal return for these five days?

Accepted Answer

A) -.7 
B) -.8 
C) -.5 
D) -.10 
E) -.3 
A) -.7 
B) -.8 
C) -.5 
D) -.10 
E) -.3

Question 3

What does weak form efficiency imply?

Accepted Answer

A) Portfolio diversification is ineffective as all prices are interrelated. 
B) Past price movement is unrelated to the movement of future prices. 
C) Abnormal returns will disappear within a trading day. 
D) Price patterns that existed in the past will reappear in the future. 
E) A stock with a highly positive serial correlation in the past will maintain that correlation in the future. 
A) Portfolio diversification is ineffective as all prices are interrelated. 
B) Past price movement is unrelated to the movement of future prices. 
C) Abnormal returns will disappear within a trading day. 
D) Price patterns that existed in the past will reappear in the future. 
E) A stock with a highly positive serial correlation in the past will maintain that correlation in the future.

Question 4

The principle that investors might be too slow in adjusting their beliefs to new information is referred to as:

Accepted Answer

A) conservatism. 
B) liberalism. 
C) representativeness. 
D) weak form efficiency. 
E) the timing decision. 
A) conservatism. 
B) liberalism. 
C) representativeness. 
D) weak form efficiency. 
E) the timing decision.

Question 5

Which one of these terms is used to describe a market where investors draw conclusions from insufficient data?

Accepted Answer

A) Representativeness 
B) Synergy 
C) Conservatism 
D) Arbitrage 
E) Independent deviations from rationality 
A) Representativeness 
B) Synergy 
C) Conservatism 
D) Arbitrage 
E) Independent deviations from rationality

Question 6

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

Accepted Answer

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

Question 7

Which one of these would generally be considered the most rational action for a tax-paying investor?

Accepted Answer

A) Trading frequently 
B) Selling their losing and holding their winning securities 
C) Throwing darts to select their portfolio holdings 
D) Holding a less than fully diversified portfolio of securities 
E) Ignoring taxes when making investment decisions 
A) Trading frequently 
B) Selling their losing and holding their winning securities 
C) Throwing darts to select their portfolio holdings 
D) Holding a less than fully diversified portfolio of securities 
E) Ignoring taxes when making investment decisions

Question 8

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

Question 9

Which one of these is a finding of Ritter's study of initial public offerings (IPOs)?

Accepted Answer

A) Firms with either IPOs or SEPs tend to outperform their control groups for the 5-year period following the issue of the new securities. 
B) IPOs are generally incorrectly priced at issuance because over the next five years the IPO firm's abnormal returns exceeded 6 percent on average. 
C) The annual returns for IPO firms during the 5-year period following an IPO are about two percent lower than their control group. 
D) Comparable IPO and non-IPO firms had similar returns for the 5-year period following an IPO. 
E) IPO firms tend to lose 10 percent or more of their market value in the two years following their IPO. 
A) Firms with either IPOs or SEPs tend to outperform their control groups for the 5-year period following the issue of the new securities. 
B) IPOs are generally incorrectly priced at issuance because over the next five years the IPO firm's abnormal returns exceeded 6 percent on average. 
C) The annual returns for IPO firms during the 5-year period following an IPO are about two percent lower than their control group. 
D) Comparable IPO and non-IPO firms had similar returns for the 5-year period following an IPO. 
E) IPO firms tend to lose 10 percent or more of their market value in the two years following their IPO.

Question 10

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 11

What key item should managers look for when considering an acquisition?

Accepted Answer

Managers should look for synergies,or be

Question 12

Based on the efficient market hypothesis,a stock's abnormal return at Time t is an indicator of:

Accepted Answer

A) semistrong form inefficiency. 
B) cumulative market expectations. 
C) a release of information at Time t. 
D) conservatism. 
E) weak form inefficiency. 
A) semistrong form inefficiency. 
B) cumulative market expectations. 
C) a release of information at Time t. 
D) conservatism. 
E) weak form inefficiency.

Question 13

The research done by Ikenberry,Lakonishok,and Vermaelen supports the argument that mangers:

Accepted Answer

A) effectively time IPOs but not SEOs. 
B) cannot effectively time IPOs. 
C) cannot effectively time either stock sales or repurchases. 
D) effectively time stock repurchases. 
E) can effectively time stock sales but not repurchases. 
A) effectively time IPOs but not SEOs. 
B) cannot effectively time IPOs. 
C) cannot effectively time either stock sales or repurchases. 
D) effectively time stock repurchases. 
E) can effectively time stock sales but not repurchases.

Question 14

Weak form efficiency is best defined as a market where current prices are based on:

Accepted Answer

A) totally rational decisions. 
B) historical prices. 
C) information known to any person or organization. 
D) all publicly available information. 
E) irrational decisions by amateur investors. 
A) totally rational decisions. 
B) historical prices. 
C) information known to any person or organization. 
D) all publicly available information. 
E) irrational decisions by amateur investors.

Question 15

Define the three forms of market efficiency.

Accepted Answer

The answer of Define the three forms of market efficiency....

Question 16

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

Accepted Answer

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

Question 17

Efficient markets require which one of these?

Accepted Answer

A) Dart thrower investors 
B) Only rational investors 
C) Overly optimistic amateur investors 
D) Countervailing irrationalities 
E) Investors adhering to the conservatism principle 
A) Dart thrower investors 
B) Only rational investors 
C) Overly optimistic amateur investors 
D) Countervailing irrationalities 
E) Investors adhering to the conservatism principle

Question 18

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

Accepted Answer

A) the decision between LIFO and FIFO for inventory accounting can significantly affect stock prices. 
B) a firm can affect its stock price if it either withholds information or provides incorrect information. 
C) accounting changes that increase accounting earnings also increase stock prices. 
D) switching depreciation methods can significantly affect stock prices. 
E) the choice between the percentage-of-completion or the completed-contract method for construction projects affect stock prices. 
A) the decision between LIFO and FIFO for inventory accounting can significantly affect stock prices. 
B) a firm can affect its stock price if it either withholds information or provides incorrect information. 
C) accounting changes that increase accounting earnings also increase stock prices. 
D) switching depreciation methods can significantly affect stock prices. 
E) the choice between the percentage-of-completion or the completed-contract method for construction projects affect stock prices.

Question 19

Which of these are arguments that support the position that the efficient market hypothesis fails in actual application?
I.Arbitrage may involve too much risk to offset irrational behaviour
II.Investors may be irrational
III.Irrationalities are contervailing
IV.Irrationality may be related across investors

Accepted Answer

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

Question 20

Given the vast resources available to mutual fund managers,these managers on average have generally:

Accepted Answer

A) outperformed the overall market on a risk-adjusted basis. 
B) eliminated excess profits for arbitrageurs. 
C) beat broad-based indexes. 
D) proved the market to be strong form efficient. 
E) underperformed the market on a risk-adjusted basis. 
A) outperformed the overall market on a risk-adjusted basis. 
B) eliminated excess profits for arbitrageurs. 
C) beat broad-based indexes. 
D) proved the market to be strong form efficient. 
E) underperformed the market on a risk-adjusted basis.

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

What does weak form efficiency imply?

The principle that investors might be too slow in adjusting their beliefs to new information is referred to as:

Which one of these terms is used to describe a market where investors draw conclusions from insufficient data?

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

Which one of these would generally be considered the most rational action for a tax-paying investor?

Which one of these is a finding of Ritter's study of initial public offerings (IPOs)?

What key item should managers look for when considering an acquisition?

Based on the efficient market hypothesis,a stock's abnormal return at Time t is an indicator of:

The research done by Ikenberry,Lakonishok,and Vermaelen supports the argument that mangers:

Weak form efficiency is best defined as a market where current prices are based on:

Define the three forms of market efficiency.

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

Efficient markets require which one of these?

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

Given the vast resources available to mutual fund managers,these managers on average have generally:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

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Exam 13: Efficient Capital Markets and Behavioral Challenges

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

What does weak form efficiency imply?

The principle that investors might be too slow in adjusting their beliefs to new information is referred to as:

Which one of these terms is used to describe a market where investors draw conclusions from insufficient data?

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

Which one of these would generally be considered the most rational action for a tax-paying investor?

Which one of these is a finding of Ritter's study of initial public offerings (IPOs)?

What key item should managers look for when considering an acquisition?

Based on the efficient market hypothesis,a stock's abnormal return at Time t is an indicator of:

The research done by Ikenberry,Lakonishok,and Vermaelen supports the argument that mangers:

Weak form efficiency is best defined as a market where current prices are based on:

Define the three forms of market efficiency.

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

Efficient markets require which one of these?

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

Given the vast resources available to mutual fund managers,these managers on average have generally:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters