Question 1

The performance of index funds

Accepted Answer

A) usually falls short of the performance of actively-managed funds. 
B) provides evidence in support of the notion that stock prices do not depend upon supply and demand. 
C) provides evidence in support of the efficient markets hypothesis. 
D) provides evidence in support of the notion that stock-market participants are irrational. 
A) usually falls short of the performance of actively-managed funds. 
B) provides evidence in support of the notion that stock prices do not depend upon supply and demand. 
C) provides evidence in support of the efficient markets hypothesis. 
D) provides evidence in support of the notion that stock-market participants are irrational.

Question 2

A pharmaceutical company unexpectedly announces that it just developed an important new drug.This news should

Accepted Answer

A) raise the price of the corporation's stock;if it does not the stock is overvalued. 
B) raise the price of the corporation's stock;if it does not the stock is undervalued. 
C) reduce the price of the corporation's stock;if it does not the stock is overvalued. 
D) reduce the price of the corporation's stock;if it does not the stock is undervalued. 
A) raise the price of the corporation's stock;if it does not the stock is overvalued. 
B) raise the price of the corporation's stock;if it does not the stock is undervalued. 
C) reduce the price of the corporation's stock;if it does not the stock is overvalued. 
D) reduce the price of the corporation's stock;if it does not the stock is undervalued.

Question 3

When a person engages in detailed analysis of a company to determine its value,he or she is engaging in

Accepted Answer

A) standard deviation analysis. 
B) informational analysis. 
C) fundamental analysis. 
D) efficiency analysis. 
A) standard deviation analysis. 
B) informational analysis. 
C) fundamental analysis. 
D) efficiency analysis.

Question 4

Which of the following is correct?

Accepted Answer

A) Risk-averse people will not hold stock. 
B) Diversification cannot reduce firm-specific risk. 
C) The larger the percentage of stock in a portfolio,the greater the risk,but the greater the average return. 
D) Stock prices are determined by fundamental analysis rather than by supply and demand. 
A) Risk-averse people will not hold stock. 
B) Diversification cannot reduce firm-specific risk. 
C) The larger the percentage of stock in a portfolio,the greater the risk,but the greater the average return. 
D) Stock prices are determined by fundamental analysis rather than by supply and demand.

Question 5

During a financial crisis the possibility of bank failures rises.An increase in the likelihood of a bank failing shifts demand for its stock

Accepted Answer

A) right,so the price rises. 
B) right,so the price falls. 
C) left,so the price rises. 
D) left,so the price falls. 
A) right,so the price rises. 
B) right,so the price falls. 
C) left,so the price rises. 
D) left,so the price falls.

Question 6

Diversification

Accepted Answer

A) increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher. 
B) increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower. 
C) reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher. 
D) reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower. 
A) increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher. 
B) increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower. 
C) reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher. 
D) reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower.

Question 7

The efficient markets hypothesis implies that

Accepted Answer

A) building a portfolio based on a published list of the "most respected" companies is likely to produce a better-than-average return. 
B) if a stock rose in price last year,it is likely to rise in price this year. 
C) managed mutual funds should generally outperform indexed mutual funds. 
D) None of the above are correct. 
A) building a portfolio based on a published list of the "most respected" companies is likely to produce a better-than-average return. 
B) if a stock rose in price last year,it is likely to rise in price this year. 
C) managed mutual funds should generally outperform indexed mutual funds. 
D) None of the above are correct.

Question 8

Suppose fundamental analysis indicates that XYZ Corporation's stock is undervalued.

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 9

Writing in The Wall Street Journal in 2009,economist Jeremy Siegel pointed out that the efficient markets hypothesis

Accepted Answer

A) was responsible for the financial crisis of 2008-2009. 
B) was responsible for the Great Depression of the 1930s. 
C) claims that prices observed in financial markets are always "right." 
D) claims that prices observed in financial markets are mostly "wrong." 
A) was responsible for the financial crisis of 2008-2009. 
B) was responsible for the Great Depression of the 1930s. 
C) claims that prices observed in financial markets are always "right." 
D) claims that prices observed in financial markets are mostly "wrong."

Question 10

Suppose that interest rates unexpectedly rise and that FineLine Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down.According to the efficient markets hypothesis,which of the these things make the price of FineLine Corporation Stock fall?

Accepted Answer

A) both the interest rate rising and the revenue announcement 
B) neither the interest rate rising nor the revenue announcement 
C) only the interest rate rising 
D) only the revenue announcement 
A) both the interest rate rising and the revenue announcement 
B) neither the interest rate rising nor the revenue announcement 
C) only the interest rate rising 
D) only the revenue announcement

Exam 14: The Basic Tools of Finance: Asset Valuation

The performance of index funds

A pharmaceutical company unexpectedly announces that it just developed an important new drug.This news should

When a person engages in detailed analysis of a company to determine its value,he or she is engaging in

Which of the following is correct?

During a financial crisis the possibility of bank failures rises.An increase in the likelihood of a bank failing shifts demand for its stock

Diversification

The efficient markets hypothesis implies that

Suppose fundamental analysis indicates that XYZ Corporation's stock is undervalued.

Writing in The Wall Street Journal in 2009,economist Jeremy Siegel pointed out that the efficient markets hypothesis

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

Application International Trade: Part A

Application International Trade: Part B

Measuring a Nations Income

Measuring a Nations Income: The Economy's Income and Expenditure

Measuring a Nations Income: The Measurement of GDP

Measuring a Nations Income: The Components of GDP

Measuring a Nations Income: Real Versus Nominal GDP

Measuring a Nations Income: Is GDP a Good Measure of Economic Well-Being

Measuring a Nations Income: Part A

Measuring a Nations Income: Part B

Measuring the Cost of Living