Chapter 10 the stock market and the efficient market hypothesis

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SlideShare Explore Search You. Chapter 10 The Stock Market and the Efficient Market Show related SlideShares at end. Full Name Comment goes here. Are you sure you want to Yes No. Prnetust You are simply subject to the way the market bounces and that's the way it is. I have personally used this before. But i loose my money trading on this. Now i'm satisfied with GINO SHEARER TRADING. Embeds 0 No embeds. No notes for slide. B its future dividend payments and the required return on equity.

D its future dividend payments. B A the present value of all future net cash flows generated by the investment. C unrelated to the future net cash flows generated by the investment. C the required return on investments in equity.

A one year and requires 12 percent return on equity investments? C C the higher is the required return on investments in equity.

B 10 percent A dividend C 5 percent B expected future price D 2 percent C required return on equity Answer: A D current price Answer: C 2. Some investors have required returns on investments in required return on investments in equity is equity of 12 percent, some 10 percent, and some 8 percent.

C 13 Suppose the average industry PE ratio for auto parts retailers is B D Both are false. B 14 Which of the following is true regarding the Gordon growth model?

A Dividends are assumed to grow at a constant rate forever. B errors in technical stock analysis. C Both A and B. C daily trading volume in stock markets. D Neither A nor B. D information available to investors. A E total household wealth in the economy. C 15 The PE ratio approach to valuing stock is especially useful for valuing A privately held firms.

A it is difficult to estimate future dividend growth rates. D neither A nor B. B it is difficult to estimate the risk of a stock. D all of the above are true. D A publicly held corporations. B firms that regularly pay dividends. C both A and B. D 3.

A unexploited profit opportunities will never exist as market participants, such as B is determined by the highest successful bidder. C fully reflects all available relevant information. B unexploited profit opportunities will not exist for long, as market participants D is a result of none of the above.

C C every financial market participant must be well informed about securities. D only A and C of the above. B A is based on the assumption that prices of securities fully reflect all available information. A an unexploited profit opportunity.

Chapter 10 The Stock Market and the Efficient Market

C C a correction. D a mean reversion. B then A the market is inefficient. A indicates that unexploited profit opportunities exist. C the market is in equilibrium. B indicates that unexploited profit opportunities do not exist. D only A and B of the above are true. C need not indicate that unexploited profit opportunities exist. E only B and C of the above are true.

D indicates that the efficient market hypothesis is fundamentally flawed. C 25 According to the efficient market hypothesis 30 Studies of mutual fund performance indicate that mutual funds that outperformed A one cannot expect to earn an abnormally high return by purchasing a security. B usually beat the market in the next two subsequent time periods.

C unexploited profit opportunities abound, thereby explaining why so many C usually beat the market in the next three subsequent time periods. D usually do not beat the market in the next time period. D E only A and B of the above are true. E 31 The efficient market hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst 26 Another way to state the efficient market condition is that in an efficient market, A will certainly mean higher returns than if you had made selections by throwing A unexploited profit opportunities will be quickly eliminated.

B unexploited profit opportunities will never exist. B will always mean lower returns than if you had made selections by throwing C arbitrageurs guarantee that unexploited profit opportunities never exist.

D both A and C of the above occur. C is not likely to prove superior to a strategy of making selections by throwing Answer: A darts at the financial page. D is good for the economy. C 4. A securities markets are not efficient. A Financial analysts' published recommendations B unexploited profit opportunities were abundant.

Efficient-market hypothesis - Wikipedia

B Technical analysis C investors can outperform the market with inside information. C Hot tips from a stockbroker D only B and C of the above. D None of the above Answer: D 33 To say that stock prices follow a "random walk" is to argue that 39 The advantage of a "buy-and-hold strategy" is that A stock prices rise, then fall. A net profits will tend to be higher because there will be fewer brokerage B stock prices rise, then fall in a predictable fashion. C stock prices tend to follow trends.

B losses will eventually be eliminated. D stock prices are, for all practical purposes, unpredictable. C the longer a stock is held, the higher will be its price. D D only B and C of the above are true. A 34 To say that stock prices follow a "random walk" is to argue that A stock prices rise, then fall, then rise again.

A investors should not try to outguess the market by constantly buying and C stock prices tend to follow trends. D stock prices cannot be predicted based on past trends.

B investors do better on average if they adopt a "buy and hold" strategy. D C buying into a mutual fund is a sensible strategy for a small investor.

D all of the above are sensible strategies.

D A a waste of time B profitably employed by all financial analysts. This phenomenon is D consistent with the random walk hypothesis. A clearly inconsistent with the efficient market hypothesis.

A B consistent with the efficient market hypothesis if the earnings were not as high as anticipated. A technical analysis outperforms the overall market. D the result of none of the above.

B technical analysis far outperforms the overall market, suggesting that Answer: B stockbrokers provide valuable services. C technical analysis does not outperform the overall market. A Future changes in stock prices should, for all practical purposes, be Answer: B Stock prices will respond to announcements only when the information in 37 Which of the following types of information will most likely enable the exploitation these announcements is new.

C Sometimes a stock price declines when good news is announced. A Financial analysts' published recommendations D all of the above. B Technical analysis E only A and B of the above. C Hot tips from a stockbroker Answer: D D Insider information Answer: D 5. A a good starting point for analyzing expectations. FALSE B not a good starting point for analyzing expectations.

C too general to be a useful tool for analyzing expectations. FALSE 44 The efficient market hypothesis suggests that A investors should purchase no-load mutual funds which have low management fees. C investors let too many unexploited profit opportunities go by if they adopt a 1 How is it possible that a firm can announce a record breaking loss, yet its stock "buy and hold" strategy.

D only A and B of the above are sensible strategies. A 2 What is the optimal investment strategy according to the efficient market hypothesis? TRUE 3 Evidence that a mutual fund has performed extraordinarily well in the past contradicts the efficient market hypothesis. FALSE 4 In an efficient market, every stock is a good choice. TRUE 5 Technical analysts look at historical prices for information to project future prices. TRUE 6 The evidence suggests technical analysts are not superior stock pickers.

TRUE 7 If the markets are efficient, the optimal investment strategy will be to buy and hold so as to minimize transaction costs. Stock valuation, financial statement. Start clipping No thanks. You just clipped your first slide! Clipping is a handy way to collect important slides you want to go back to later.

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