Question 1

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise. This contrary evidence happens because:

Accepted Answer

A)   markets are inefficient and unsure of the real value of the events.
B)   death is inevitable and market prices are random.
C)   things simply happen.
D)   the value of the founding executive was a negative to the firm.E) C) and D)
F) A) and B)

Question 2

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

Accepted Answer

A)   Real asset markets are more efficient than financial markets.
B)   If a market is efficient, arbitrage opportunities should be common.
C)   In an efficient market, some market participants will have an advantage over others.
D)   A firm will generally receive a fair price when it sells shares of stock.E) B) and D)
F) B) and C)

Question 3

Under the concept of an efficient market a random walk in stock prices means that:

Accepted Answer

A)   there is no driving force behind price changes.
B)   technical analysts can predict future price movements to earn excess returns.
C)   the unexplained portion of price change in one period is unrelated to the unexplained portion of price change in any other period.
D)   the unexplained portion of price change in one period that cannot be explained by expected return, can only be explained by the unexplained portion of price change in a prior period.E) A) and D)
F) A) and B)

Question 4

When the stock price follows a random walk the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

Accepted Answer

A)   a predictable amount based on the past prices.
B)   a component based on new information unrelated to past prices.
C)   the security's risk.
D)   the risk free rate.E) B) and D)
F) B) and C)

Question 5

On May 12, 2001 the WWF announced the demise of the XFL. The WWF stock price jumped up significantly on the day.

Accepted Answer

A)   These results are consistent with strong from efficiency because insiders knew the league would fold.
B)   These results are consistent with semi-strong form efficiency as the demise would reverse the negative cashflow.
C)   These results are inconsistent with weak form efficiency because past price behavior predicted the collapse.
D)   These results are inconsistent with all forms of market efficiency because a failure is a negative event.
E)   These results are consistent with all forms of market efficiency as all information is known and priced in.F) A) and B)
G) B) and C)

Question 6

Which form of the efficient market hypothesis implies that security prices reflect all information contained in past prices?

Accepted Answer

A)   The weak form.
B)   The semi-strong form.
C)   The strong form.
D)   The hard form.
E)   The past form.F) A) and B)
G) C) and E)

Question 7

The abnormal return on a security for a particular day can be estimated by the equation:

Accepted Answer

A)   AR = R - Rm.
B)   AR = Rm- R.
C)   AR = Rm- Rf.
D)   AR = R - Rf.
E)   AR = Rf - Rm.F) A) and D)
G) All of the above

Question 8

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) A) and D)
F) C) and D)

Question 9

The Nu-Tux Seat Company has an expansion opportunity and is considering selling their 100,000 share investment in Slip-Cover currently worth $2 million or raising other external funding. The share price has been holding in a narrow range day to day. If Nu-Tux decides to unload their holding is there any concern about getting the full $2 million, aside from investment banker/brokerage fees. Explain these concerns about market behavior and cite the evidence.

Accepted Answer

Large block sales impact or price pressu...

Question 10

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages. He finds that he can "beat the market" by short-selling the stock of the firm that will be sued. This finding is a violation of the:

Accepted Answer

A)   moderate form of the efficient market hypothesis.
B)   semi-strong form of the efficient market hypothesis.
C)   strong form of the efficient market hypothesis.
D)   weak form of the efficient market hypothesis.E) B) and C)
F) A) and D)

Question 11

An investor discovers that predictions about weather patterns published years in advance and found in the Farmer's Almanac are amazingly accurate. In fact, these predictions enable the investor to predict the health of the farm economy and therefore certain security prices. This finding is a violation of the:

Accepted Answer

A)   moderate form of the efficient market hypothesis.
B)   semi-strong form of the efficient market hypothesis.
C)   strong form of the efficient market hypothesis.
D)   weak form of the efficient market hypothesis.E) A) and D)
F) A) and C)

Question 12

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

Accepted Answer

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

Question 13

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)   semistrong
C)   strongD) All of the above
E) B) and C)

Question 14

If the financial markets are efficient, then investors should expect their investments in those markets to:

Accepted Answer

A)   earn extraordinary returns on a routine basis.
B)   generally have positive net present values.
C)   generally have zero net present values.
D)   produce arbitrage opportunities on a routine basis.E) A) and C)
F) All of the above

Question 15

The model, Pt = Pt-1 + Expected Return + Random errors, supports the weak form of the efficient market hypothesis if:

Accepted Answer

A)   the random error can be predicted by past prices.
B)   there is correlation between random errors period to period.
C)   the random errors are unrelated from one period to the next period.
D)   the expected return is not based on the security's risk.E) B) and D)
F) B) and C)

Question 16

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:

Accepted Answer

A)   rise gradually over the next few days.
B)   decline gradually over the next few days.
C)   rise on the same day to the new price.
D)   stay at the same price, with no net effect.
E)   drop on the same day to the new price.F) All of the above
G) A) and E)

Question 17

You have observed an apparent, yet odd, increase stock prices when companies have spun-off divisions. You have just collected the data on 50 such events. The average beta (market value weighted) is 1.15 for this group.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Little happens on Day -4 through -2 and...

Question 18

Which of the following is not true about serial correlation?

Accepted Answer

A)   It measures the correlation between the current return on a security and the current return on another security.
B)   It involves only one security.
C)   Positive serial correlation indicates a tendency for continuation.
D)   Negative serial correlation indicates a tendency toward reversal.
E)   Significant positive or negative serial correlation coefficients are indicative of market inefficiency in the weak form.F) A) and B)
G) All of the above

Question 19

Studies on the timing of corporate issues of new equities suggest that corporations tend to offer:

Accepted Answer

A)   new issues after stock price increases. This behavior is consistent with the weak form of the efficient market hypothesis.
B)   new issues after stock price increases. This behavior is inconsistent with the weak form of the efficient market hypothesis.
C)   new issues randomly with regard to stock price changes. This behavior is consistent with the weak form of the efficient market hypothesis.
D)   new issues randomly with regard to stock price changes. This behavior is inconsistent with the weak form of the efficient market hypothesis.E) B) and C)
F) A) and D)

Question 20

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

Accepted Answer

A)   inconsistent with the semi-strong 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 semi-strong 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) C) and D)
F) A) and B)

Exam 14: Corporate Financing Decisions and Efficient Capital Markets

You have observed an apparent, yet odd, increase stock prices when companies have spun-off divisions. You have just collected the data on 50 such events. The average beta (market value weighted) is 1.15 for this group.

Correct Answer
verified
Little happens on Day -4 through -2 and...
View Answer

The abnormal return on a security for a particular day can be estimated by the equation:

Correct Answer
verified

Individuals that continually monitor the financial markets seeking mispriced securities:

Correct Answer
verified

If the financial markets are efficient, then investors should expect their investments in those markets to:

Correct Answer
verified

Correct Answer
verified

The model, P_t = P_t-1 + Expected Return + Random errors, supports the weak form of the efficient market hypothesis if:

Correct Answer
verified

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise. This contrary evidence happens because:

Correct Answer
verified

Studies on the timing of corporate issues of new equities suggest that corporations tend to offer:

Correct Answer
verified

When the stock price follows a random walk the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

Correct Answer
verified

Correct Answer
verified
Large block sales impact or price pressu...
View Answer

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

Correct Answer
verified

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.

Correct Answer
verified

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:

Correct Answer
verified

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

Correct Answer
verified

Which of the following is not true about serial correlation?

Correct Answer
verified

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

Correct Answer
verified

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages. He finds that he can "beat the market" by short-selling the stock of the firm that will be sued. This finding is a violation of the:

Correct Answer
verified

On May 12, 2001 the WWF announced the demise of the XFL. The WWF stock price jumped up significantly on the day.

Correct Answer
verified

Which form of the efficient market hypothesis implies that security prices reflect all information contained in past prices?

Correct Answer
verified

Under the concept of an efficient market a random walk in stock prices means that:

Correct Answer
verified

Exam 14: Corporate Financing Decisions and Efficient Capital Markets

You have observed an apparent, yet odd, increase stock prices when companies have spun-off divisions. You have just collected the data on 50 such events. The average beta (market value weighted) is 1.15 for this group.

Correct Answerverified Little happens on Day -4 through -2 and...View AnswerShow Answer

The abnormal return on a security for a particular day can be estimated by the equation:

Correct AnswerverifiedShow Answer

Individuals that continually monitor the financial markets seeking mispriced securities:

Correct AnswerverifiedShow Answer

If the financial markets are efficient, then investors should expect their investments in those markets to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The model, Pt = Pt-1 + Expected Return + Random errors, supports the weak form of the efficient market hypothesis if:

Correct AnswerverifiedShow Answer

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise. This contrary evidence happens because:

Correct AnswerverifiedShow Answer

Studies on the timing of corporate issues of new equities suggest that corporations tend to offer:

Correct AnswerverifiedShow Answer

When the stock price follows a random walk the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedLarge block sales impact or price pressu...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not true about serial correlation?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages. He finds that he can "beat the market" by short-selling the stock of the firm that will be sued. This finding is a violation of the:

Correct AnswerverifiedShow Answer

On May 12, 2001 the WWF announced the demise of the XFL. The WWF stock price jumped up significantly on the day.

Correct AnswerverifiedShow Answer

Which form of the efficient market hypothesis implies that security prices reflect all information contained in past prices?

Correct AnswerverifiedShow Answer

Under the concept of an efficient market a random walk in stock prices means that:

Correct AnswerverifiedShow Answer

Correct Answer
verified
Little happens on Day -4 through -2 and...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The model, P_t = P_t-1 + Expected Return + Random errors, supports the weak form of the efficient market hypothesis if:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Large block sales impact or price pressu...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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