Question 1

The Efficient Markets Hypothesis (EMH) states that a stock's current price correctly predicts the underlying company's future results.

Accepted Answer

A) True 
 B)False  False

Question 2

The covariance of two risky assets measures how two returns of two assets move in relation to each other. What happens to the relation between the two returns if the covariance is negative?

Accepted Answer

A)  Two returns move in the same direction.
B)  Two returns move in opposite directions.
C)  Two returns are equal.
D)  Two returns do not have any relation. B

Question 3

Tom has decided to invest in different assets simultaneously in order to reduce risks. What is this strategy called?

Accepted Answer

A)  Multiple investments.
B)  Diversification.
C)  Risk reduction.
D)  Shared partnership. B

Question 4

In the random walk hypothesis, rates of return must meet which of the following conditions?

Accepted Answer

A)  Independent over time.
B)  Identically distributed.
C)  Uncorrelated.
D)  Independently and identically distributed.

Question 5

According to the Efficient Market Hypothesis (EMH), a market is said to be efficient if prices in that market reflect all available information. Is this following statement true or false?"It is possible to consistently outperform the market by taking advantage of all the information that the market already knows"

Accepted Answer

A) True 
 B)False

Question 6

A portfolio is a collection of investments made by individuals or institutions. The market portfolio then is:

Accepted Answer

A)  A collection of investments into a specific market.
B)  A collection of all securities where the amount invested in each security is proportional to its relative market value.
C)  A collection of all securities available in a specific market and the amount invested is the same for every security.
D)  A collection of all investments in a whole economy.

Exam 8: The Efficient Market Hypothesis, the Mean Variance Portfolio Theory, and the Random Walk Model

The Efficient Markets Hypothesis (EMH) states that a stock's current price correctly predicts the underlying company's future results.

The covariance of two risky assets measures how two returns of two assets move in relation to each other. What happens to the relation between the two returns if the covariance is negative?

Tom has decided to invest in different assets simultaneously in order to reduce risks. What is this strategy called?

In the random walk hypothesis, rates of return must meet which of the following conditions?

A portfolio is a collection of investments made by individuals or institutions. The market portfolio then is: