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1 | |
If the capital markets are efficient, then the sale or purchase of any security at the prevailing market price is: |
| | A) | Always a positive NPV transaction |
| | B) | Generally a zero NPV transaction |
| | C) | Is always a negative NPV transaction |
| | D) | None of the above |
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2 | |
Generally, a firm is able to find positive NPV opportunities with: |
| | A) | Financing decisions |
| | B) | Capital investment decisions |
| | C) | All of the above |
| | D) | None of the above |
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3 | |
Financing decisions differ from investment decisions for which of the following reasons? |
| | A) | You cannot use NPV to evaluate financing decisions |
| | B) | The market for financial assets is more active |
| | C) | It is easier to find financing decisions with positive NPV than to find investment decisions with positive NPV |
| | D) | None of the above |
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4 | |
The statement that stock prices follow a random walk implies: |
| | A) | Successive price changes are independent of each other |
| | B) | Successive price changes are positively related |
| | C) | Successive price changes are negatively related |
| | D) | The autocorrelation coefficient is positive |
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5 | |
Which of the following statement(s) is/are true if the efficient market hypothesis holds? |
| | A) | It implies perfect forecasting ability |
| | B) | It implies market is irrational |
| | C) | It implies prices follow a particular pattern |
| | D) | It implies prices reflect all available information |
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6 | |
Which of the following is a statement of weak form efficiency? |
| | A) | If markets are efficient in the weak form, then it is impossible to make consistently superior profits by using trading rules based on past returns |
| | B) | If the markets are efficient in the weak form, then prices will adjust immediately to public information |
| | C) | If the markets are efficient in the weak form, then prices reflect all information |
| | D) | None of the above |
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7 | |
Suppose that, after conducting an analysis of past stock prices, you came up with the following observations. Which would appear to contradict the weak form of the efficient market hypothesis? |
| | A) | The average return is significantly higher than the risk-free rate of return |
| | B) | The correlation between the return one week and the return the next week is 0.4 |
| | C) | The correlation between the return one week and the return next week is zero |
| | D) | One could have made higher-than-average capital gains by holding shares with low dividend yield |
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8 | |
A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages. He finds he can "beat the market" by short selling the stock of the firm that will be sued. This finding is in violation of the: |
| | A) | Weak form market efficiency |
| | B) | Semi-strong form market efficiency |
| | C) | Strong form market efficiency |
| | D) | None of the above |
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9 | |
In order to test the efficient-market hypothesis in the semi-strong form, researchers have used (the): |
| | A) | Estimation of the serial correlation (autocorrelation) for securities and markets |
| | B) | Measurement of the performance of mutual fund managers over the years |
| | C) | Measurement of how rapidly security prices adjust to different news items |
| | D) | All of the above |
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10 | |
Studies on mutual fund performance indicate |
| | A) | Most mutual funds had higher returns than the benchmark portfolio after expenses |
| | B) | Most mutual funds had lower returns than the benchmark portfolio before expenses |
| | C) | Most mutual funds had roughly the same returns as the benchmark portfolio after expenses |
| | D) | Most mutual funds had lower returns than the benchmark portfolio after expenses and roughly matched the benchmark portfolio before expenses |
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11 | |
The acronym CAR stands for: |
| | A) | Cumulative Abnormal Return |
| | B) | Cumulative Average Risk |
| | C) | Current Average Return |
| | D) | None of the above |
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12 | |
The annual expected dividend on the S&P index was about 17. If the dividend is expected to grow at a steady rate of 10% a year and the required annual rate of return is 11%, what is the value of the index? |
| | A) | 1193 |
| | B) | 1700 |
| | C) | 928 |
| | D) | None of the above |
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13 | |
In an efficient market: |
| | A) | Publicly held companies should diversify their operations because investors benefit from diversification |
| | B) | Publicly held companies should not diversify their operations |
| | C) | Investors do not care whether or not companies diversify their operations |
| | D) | None of the above |
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14 | |
Financing decisions cannot be analyzed using the NPV rule. |
| | A) | True |
| | B) | False |
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15 | |
In an efficient market, information is free. |
| | A) | True |
| | B) | False |
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16 | |
Maurice Kendall's presentation on the random walk of stock and commodity pricing implied: |
| | A) | Price changes were uncorrelated |
| | B) | Price changes were based on trends |
| | C) | Price changes were correlated |
| | D) | Price changes can be predicted |
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17 | |
Which of the following is not a form of market efficiency? |
| | A) | Semi-weak form |
| | B) | Weak form |
| | C) | Semi-strong form |
| | D) | Strong |
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18 | |
The weak form of market efficiency implies: |
| | A) | Prices reflect only insider information |
| | B) | Only published information |
| | C) | Prices reflect both published and insider information |
| | D) | None of the above |
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19 | |
The crash of 1987 was not blamed on the following market participants |
| | A) | Arbitrageurs |
| | B) | Day traders |
| | C) | Institutional investors |
| | D) | Specialists |
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20 | |
If financial managers believe they can determine asset pricing better than others they are in violation of which lesson of market efficiency? |
| | A) | Trust market prices |
| | B) | Read the entrails |
| | C) | The do-it-yourself alternative |
| | D) | There are no financial illusions |
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21 | |
Suppose a financial manager assumes there are no financial illusions. What return would be earned immediately after a two-for-one stock split? |
| | A) | 100% |
| | B) | 50% |
| | C) | –50% |
| | D) | 0.0% |
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22 | |
Investors buy a stock for its unique characteristics over the prospects of a fair return for its risk. |
| | A) | True |
| | B) | False |
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23 | |
Investors should assume markets have short-term memory in recent stock prices. |
| | A) | True |
| | B) | False |
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