Question 1

Fundamental analysis shows that stock in Stainless Appliance Company has a present value below its price.

Accepted Answer

A) This stock is overvalued;you should consider adding it to your portfolio. 
B) This stock is overvalued;you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued;you should consider adding it to your portfolio. 
D) This stock is undervalued;you shouldn't consider adding it to your portfolio. 
A) This stock is overvalued;you should consider adding it to your portfolio. 
B) This stock is overvalued;you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued;you should consider adding it to your portfolio. 
D) This stock is undervalued;you shouldn't consider adding it to your portfolio.

Question 2

Writing in the Wall Street Journal in 2009,economist Jeremy Siegel argued that,in the years leading up to the financial crisis of 2008-2009,

Accepted Answer

A) financial firms acted in too risky a fashion. 
B) the Federal Reserves's efforts to rein in the risky behavior of certain financial firms were inadequate. 
C) falling house prices "crashed the banks and the economy." 
D) All of the above are correct. 
A) financial firms acted in too risky a fashion. 
B) the Federal Reserves's efforts to rein in the risky behavior of certain financial firms were inadequate. 
C) falling house prices "crashed the banks and the economy." 
D) All of the above are correct.

Question 3

Cash payments that companies make to shareholders are called

Accepted Answer

A) annuities. 
B) dividends. 
C) premiums. 
D) favorables. 
A) annuities. 
B) dividends. 
C) premiums. 
D) favorables.

Question 4

Dividends

Accepted Answer

A) are the rates of return on mutual funds. 
B) are cash payments that companies make to shareholders. 
C) are the difference between the price and present value per share of a stock. 
D) are the rates of return on a company's capital stock. 
A) are the rates of return on mutual funds. 
B) are cash payments that companies make to shareholders. 
C) are the difference between the price and present value per share of a stock. 
D) are the rates of return on a company's capital stock.

Question 5

Fundamental analysis shows that stock in "Night and Day" fitness centers has a price below its present value.

Accepted Answer

A) This stock is undervalued;you should consider adding it to your portfolio. 
B) This stock is undervalued;you shouldn't consider adding it to your portfolio. 
C) This stock is overvalued;you should consider adding it to your portfolio. 
D) This stock is overvalued;you shouldn't consider adding it to your portfolio. 
A) This stock is undervalued;you should consider adding it to your portfolio. 
B) This stock is undervalued;you shouldn't consider adding it to your portfolio. 
C) This stock is overvalued;you should consider adding it to your portfolio. 
D) This stock is overvalued;you shouldn't consider adding it to your portfolio.

Question 6

By purchasing shares in a mutual fund that holds a portfolio of stocks,a person can

Accepted Answer

A) benefit from fundamental analysis,since the mutual fund requires its shareholders to perform fundamental analysis on their own. 
B) benefit from fundamental analysis,since the mutual fund hires one or more individuals to perform fundamental analysis for the fund. 
C) eliminate market risk. 
D) reduce the standard deviation of his or her portfolio to zero. 
A) benefit from fundamental analysis,since the mutual fund requires its shareholders to perform fundamental analysis on their own. 
B) benefit from fundamental analysis,since the mutual fund hires one or more individuals to perform fundamental analysis for the fund. 
C) eliminate market risk. 
D) reduce the standard deviation of his or her portfolio to zero.

Question 7

Whenever the price of an asset rises above what appears to be its fundamental value,the market is said to be experiencing a

Accepted Answer

A) conjectural mistake. 
B) fundamental mishap. 
C) speculative bubble. 
D) temporary inefficiency. 
A) conjectural mistake. 
B) fundamental mishap. 
C) speculative bubble. 
D) temporary inefficiency.

Question 8

Some people claim that stocks follow a random walk.What does this mean?

Accepted Answer

A) The price of stock one day is about what it was on the previous day. 
B) Changes in stock prices cannot be predicted from available information. 
C) Stock prices are not determined by market fundamentals such as supply and demand. 
D) Prices of stocks of different firms in the same industry show no or little tendency to move together. 
A) The price of stock one day is about what it was on the previous day. 
B) Changes in stock prices cannot be predicted from available information. 
C) Stock prices are not determined by market fundamentals such as supply and demand. 
D) Prices of stocks of different firms in the same industry show no or little tendency to move together.

Question 9

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

Accepted Answer

A) This means its present value is less than its price.You should consider adding the stock to your portfolio. 
B) This means its present value is less than its price.You shouldn't consider adding the stock to your portfolio. 
C) This means its present value is more than its price.You should consider adding the stock to your portfolio. 
D) This means its present value is more than its price.You shouldn't consider adding the stock to your portfolio. 
A) This means its present value is less than its price.You should consider adding the stock to your portfolio. 
B) This means its present value is less than its price.You shouldn't consider adding the stock to your portfolio. 
C) This means its present value is more than its price.You should consider adding the stock to your portfolio. 
D) This means its present value is more than its price.You shouldn't consider adding the stock to your portfolio.

Question 10

The word "efficient" in the term "efficient markets hypothesis" refers to the idea that

Accepted Answer

A) fundamental analysis is an efficient way to go about choosing which stocks to buy or sell. 
B) stock prices move upward and downward "efficiently," rather than following a "random walk." 
C) the stock market is "informationally efficient." 
D) companies employ officers and managers who are well-qualified to perform their jobs. 
A) fundamental analysis is an efficient way to go about choosing which stocks to buy or sell. 
B) stock prices move upward and downward "efficiently," rather than following a "random walk." 
C) the stock market is "informationally efficient." 
D) companies employ officers and managers who are well-qualified to perform their jobs.

Question 11

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

Accepted Answer

A) This stock is overvalued;you should consider adding it to your portfolio. 
B) This stock is overvalued;you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued;you should consider adding it to your portfolio. 
D) This stock is undervalued;you shouldn't consider adding it to your portfolio. 
A) This stock is overvalued;you should consider adding it to your portfolio. 
B) This stock is overvalued;you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued;you should consider adding it to your portfolio. 
D) This stock is undervalued;you shouldn't consider adding it to your portfolio.

Question 12

If asset markets are driven by the "animal spirits" of investors,then

Accepted Answer

A) those markets reflect rational behavior. 
B) those markets reflect irrational behavior. 
C) the efficient markets hypothesis is correct. 
D) the stock market exhibits informational efficiency. 
A) those markets reflect rational behavior. 
B) those markets reflect irrational behavior. 
C) the efficient markets hypothesis is correct. 
D) the stock market exhibits informational efficiency.

Question 13

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

Accepted Answer

A) "random walk" 
B) "random bubble" 
C) "speculative bubble" 
D) "speculative hedge" 
A) "random walk" 
B) "random bubble" 
C) "speculative bubble" 
D) "speculative hedge"

Question 14

A company unexpectedly announces a product recall due to safety concerns about its product.According to the efficient markets hypothesis,this news should

Accepted Answer

A) raise the price of the company's stock. 
B) not affect the price of the company's stock. 
C) reduce the price of the company's stock. 
D) More information is needed to answer the question. 
A) raise the price of the company's stock. 
B) not affect the price of the company's stock. 
C) reduce the price of the company's stock. 
D) More information is needed to answer the question.

Question 15

If you are convinced that stock prices are impossible to predict from available information,then you probably also believe that

Accepted Answer

A) the efficient markets hypothesis is not a correct hypothesis. 
B) the stock market is informationally efficient. 
C) the stock market is informationally inefficient. 
D) there is no reason to establish a diversified portfolio of stocks. 
A) the efficient markets hypothesis is not a correct hypothesis. 
B) the stock market is informationally efficient. 
C) the stock market is informationally inefficient. 
D) there is no reason to establish a diversified portfolio of stocks.

Question 16

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

Accepted Answer

A) overvalued so you should consider buying it. 
B) overvalued so you should not consider buying it. 
C) undervalued so you should consider buying it. 
D) undervalued so you should not consider buying it. 
A) overvalued so you should consider buying it. 
B) overvalued so you should not consider buying it. 
C) undervalued so you should consider buying it. 
D) undervalued so you should not consider buying it.

Question 17

The possibility of speculative bubbles in the stock market arises in part because

Accepted Answer

A) stock prices may not depend at all on psychological factors. 
B) fundamental analysis may be the correct way to evaluate the value of stocks. 
C) future streams of dividend payments are very hard to estimate. 
D) the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold. 
A) stock prices may not depend at all on psychological factors. 
B) fundamental analysis may be the correct way to evaluate the value of stocks. 
C) future streams of dividend payments are very hard to estimate. 
D) the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold.

Question 18

If unexpected news raised people's expectations of a corporation's future dividends and price,then before the price changes this corporation's stock would be

Accepted Answer

A) overvalued,so its price would rise. 
B) overvalued,so its price would fall. 
C) undervalued,so its price would rise. 
D) undervalued,so its price would fall. 
A) overvalued,so its price would rise. 
B) overvalued,so its price would fall. 
C) undervalued,so its price would rise. 
D) undervalued,so its price would fall.

Question 19

According to fundamental analysis,a saver should prefer to buy stocks that are

Accepted Answer

A) undervalued.This means the price of the stock is low given the value of the corporation. 
B) undervalued.This means the value of the corporation is low given the price of stock. 
C) overvalued.This means the price of the stock is high given the value of the corporation. 
D) overvalued.This means the value of the corporation is high given the price of stock. 
A) undervalued.This means the price of the stock is low given the value of the corporation. 
B) undervalued.This means the value of the corporation is low given the price of stock. 
C) overvalued.This means the price of the stock is high given the value of the corporation. 
D) overvalued.This means the value of the corporation is high given the price of stock.

Question 20

Fundamental analysis shows that stock in Widgets-R-Us has a present value that is lower than its price.

Accepted Answer

A) This stock is overvalued;you should consider adding it to your portfolio. 
B) This stock is overvalued;you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued;you should consider adding it to your portfolio. 
D) This stock is undervalued;you shouldn't consider adding it to your portfolio. 
A) This stock is overvalued;you should consider adding it to your portfolio. 
B) This stock is overvalued;you shouldn't consider adding it to your portfolio. 
C) This stock is undervalued;you should consider adding it to your portfolio. 
D) This stock is undervalued;you shouldn't consider adding it to your portfolio.

Exam 14: The Basic Tools of Finance: Asset Valuation

Fundamental analysis shows that stock in Stainless Appliance Company has a present value below its price.

Writing in the Wall Street Journal in 2009,economist Jeremy Siegel argued that,in the years leading up to the financial crisis of 2008-2009,

Cash payments that companies make to shareholders are called

Dividends

Fundamental analysis shows that stock in "Night and Day" fitness centers has a price below its present value.

By purchasing shares in a mutual fund that holds a portfolio of stocks,a person can

Whenever the price of an asset rises above what appears to be its fundamental value,the market is said to be experiencing a

Some people claim that stocks follow a random walk.What does this mean?

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

The word "efficient" in the term "efficient markets hypothesis" refers to the idea that

Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

If asset markets are driven by the "animal spirits" of investors,then

Which of the following terms is used to describe a situation in which the price of an asset rises above what appears to be its fundamental value?

A company unexpectedly announces a product recall due to safety concerns about its product.According to the efficient markets hypothesis,this news should

If you are convinced that stock prices are impossible to predict from available information,then you probably also believe that

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

The possibility of speculative bubbles in the stock market arises in part because

If unexpected news raised people's expectations of a corporation's future dividends and price,then before the price changes this corporation's stock would be

According to fundamental analysis,a saver should prefer to buy stocks that are

Fundamental analysis shows that stock in Widgets-R-Us has a present value that is lower than its price.

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion