Question 1

If the financial markets were regulated such that the markets maintained strong form efficiency, then:

Accepted Answer

A) insider trading laws would be unnecessary. 
B) all investors would earn equivalent rates of return. 
C) risk premiums would vanish. 
D) all investors would become arbitrage traders. 
E) securities would tend to be continually underpriced. 
A) insider trading laws would be unnecessary. 
B) all investors would earn equivalent rates of return. 
C) risk premiums would vanish. 
D) all investors would become arbitrage traders. 
E) securities would tend to be continually underpriced. A

Question 2

You analyze a firm's financial statements and invest based upon the results of this analysis. Which form of market efficiency may exist if you are able to earn abnormal profits on these investments?

Accepted Answer

A) weak form 
B) historical form 
C) semistrong form 
D) strong form 
E) mild form 
A) weak form 
B) historical form 
C) semistrong form 
D) strong form 
E) mild form A

Question 3

If the financial markets are highly efficient, then:

Accepted Answer

A) investing based on technical analysis is highly recommended. 
B) holding a diversified, low-cost, passively managed portfolio is probably your best investment strategy. 
C) you should adopt an investment strategy based on market timing. 
D) having a professional manager who actively trades your portfolio is most likely your best investment strategy. 
E) it does not matter which securities you invest in as all securities will provide relatively equal returns. 
A) investing based on technical analysis is highly recommended. 
B) holding a diversified, low-cost, passively managed portfolio is probably your best investment strategy. 
C) you should adopt an investment strategy based on market timing. 
D) having a professional manager who actively trades your portfolio is most likely your best investment strategy. 
E) it does not matter which securities you invest in as all securities will provide relatively equal returns. B

Question 4

Which of the following sources of information are used by informed traders?
I. financial statements
II. inside information
III. internet reports
IV. analysts reports

Accepted Answer

A) I and IV only 
B) II and III only 
C) III and IV only 
D) I, III, and IV only 
E) I, II, III, and IV 
A) I and IV only 
B) II and III only 
C) III and IV only 
D) I, III, and IV only 
E) I, II, III, and IV

Question 5

Studies indicate that the Vanguard 500 Index fund tends to:

Accepted Answer

A) underperform most professional money managers. 
B) produce a return equal to that of professional managers. 
C) outperform the average professional money manager, but only over the short term. 
D) outperform most professional money managers especially over longer periods of time. 
E) support the argument that the stock market is inefficient. 
A) underperform most professional money managers. 
B) produce a return equal to that of professional managers. 
C) outperform the average professional money manager, but only over the short term. 
D) outperform most professional money managers especially over longer periods of time. 
E) support the argument that the stock market is inefficient.

Question 6

The January effect:

Accepted Answer

A) does not occur in the domestic market every year. 
B) occurs every year but only for large-company stocks. 
C) occurs every year but only for small-company stocks. 
D) is unaffected by institutional investors. 
E) is unique to the United States. 
A) does not occur in the domestic market every year. 
B) occurs every year but only for large-company stocks. 
C) occurs every year but only for small-company stocks. 
D) is unaffected by institutional investors. 
E) is unique to the United States.

Question 7

Over the time period of 1929 to 1932, the stock market lost approximately ________ percent of its value.

Accepted Answer

A) 33 
B) 40 
C) 50 
D) 75 
E) 90 
A) 33 
B) 40 
C) 50 
D) 75 
E) 90

Question 8

Which of the following is specifically cited as having led to the "dot-com" bubble and crash?

Accepted Answer

A) market volatility 
B) activities in Congress 
C) lack of solid business models 
D) elevated interest rates 
E) high rates of inflation 
A) market volatility 
B) activities in Congress 
C) lack of solid business models 
D) elevated interest rates 
E) high rates of inflation

Question 9

Which one of the following terms is used to describe a stock price that moves over time creating no discernible pattern?

Accepted Answer

A) deviated pattern 
B) dispersed flow 
C) efficient movement 
D) overreaction and correction 
E) random walk 
A) deviated pattern 
B) dispersed flow 
C) efficient movement 
D) overreaction and correction 
E) random walk

Question 10

Over the past 65 years, which day of the week, on average, has the lowest average rate of return?

Accepted Answer

A) Monday 
B) Tuesday 
C) Wednesday 
D) Thursday 
E) Friday 
A) Monday 
B) Tuesday 
C) Wednesday 
D) Thursday 
E) Friday

Question 11

Over the past five days, the common stock of Taylor Mfg. had daily returns of −.1, .2, .1, .2, and .3 percent, respectively. For the same five days, the market had daily returns of .1, .3, −.4, .4, and .2 percent, respectively. What is the cumulative abnormal return on Taylor Mfg. stock for this time period?

Accepted Answer

A) −.3% 
B) −.1% 
C) .0% 
D) .1% 
E) .3% 
A) −.3% 
B) −.1% 
C) .0% 
D) .1% 
E) .3%

Question 12

Which of the following are offered as factors contributing to the Crash of October 1987?
I. bubble bursting
II. market volatility
III. negative economic signals
IV. activities in Congress

Accepted Answer

A) I and II only 
B) I and III only 
C) II, III, and IV only 
D) I, II, and III only 
E) I, II, III, and IV 
A) I and II only 
B) I and III only 
C) II, III, and IV only 
D) I, II, and III only 
E) I, II, III, and IV

Question 13

Samson Co. announced its merger plans on October 25 and had a daily return of .5 percent. Thompson Co. announced its merger plans on October 26 and had a daily return of .8 percent. The Whitewood Co. announced its merger plans on October 27 and had a daily return of −.4 percent. The daily market returns for October 25 through October 27 were .2, −.3, and .4, respectively. What is the combined cumulative abnormal return for all companies who announced mergers from October 25 through October 27?

Accepted Answer

A) .0% 
B) .2% 
C) .6% 
D) .8% 
E) 1.0% 
A) .0% 
B) .2% 
C) .6% 
D) .8% 
E) 1.0%

Question 14

Stocks A, B, and C have identical risks. Stock A earns an annual return of 9.9 percent as compared to 9.6 percent returns on stocks B and C. Given this, you can correctly assume that:

Accepted Answer

A) stock A is overpriced. 
B) the market return is 9.75 percent. 
C) stock A represents the smallest sized firm. 
D) stock A has a positive abnormal return. 
E) stocks B and C represent firms that are in the process of merging. 
A) stock A is overpriced. 
B) the market return is 9.75 percent. 
C) stock A represents the smallest sized firm. 
D) stock A has a positive abnormal return. 
E) stocks B and C represent firms that are in the process of merging.

Question 15

Which one of the following best describes the current understanding of market efficiency?

Accepted Answer

A) The market tends to overreact to new information in a manner that can be used to earn abnormal returns. 
B) Markets underreact to unanticipated events in a manner that can be used to earn abnormal returns. 
C) The market appears to be highly inefficient. 
D) Short-term market movements are difficult, if not impossible, to predict accurately. 
E) Markets tend to react slowly to unanticipated announcements. 
A) The market tends to overreact to new information in a manner that can be used to earn abnormal returns. 
B) Markets underreact to unanticipated events in a manner that can be used to earn abnormal returns. 
C) The market appears to be highly inefficient. 
D) Short-term market movements are difficult, if not impossible, to predict accurately. 
E) Markets tend to react slowly to unanticipated announcements.

Question 16

Market timing tends to lead to:

Accepted Answer

A) fairly consistent abnormal returns. 
B) increasing profits as experience is gained. 
C) superior returns but only if you are a professional money manager. 
D) a rate of return roughly equal to that of the overall market. 
E) underperforming the overall market. 
A) fairly consistent abnormal returns. 
B) increasing profits as experience is gained. 
C) superior returns but only if you are a professional money manager. 
D) a rate of return roughly equal to that of the overall market. 
E) underperforming the overall market.

Question 17

The following are the daily returns for both the overall market and for Alpha, Inc. What is the cumulative abnormal return on Alpha, Inc., stock for these five days?
$\begin{array}{lrr}
\text { Date } &\text { R(m)}& \text { Alpha }\
24-\text { oct } & 1.508 & 1.308 \
25 \text {-oct } & -.408 & .208 \
26 \text {-oct } & -.108 & .508 \
27 \text {-oct } & .308 & -.208 \
28-0 c t & 608 & -508
\end{array}$

Accepted Answer

A) -.8% 
B) -.6% 
C) -.1% 
D) .2% 
E) .5% 
A) -.8% 
B) -.6% 
C) -.1% 
D) .2% 
E) .5%

Question 18

Which one of the following occurred following the Crash of 1987?

Accepted Answer

A) Program trading was barred. 
B) All market orders were changed to electronic orders. 
C) Trading is now halted for the day any time the market declines by 10 percent or more. 
D) Trading now stops for one hour any time the market declines by 10 percent. 
E) Congress decided not to pass any antitakeover legislation. 
A) Program trading was barred. 
B) All market orders were changed to electronic orders. 
C) Trading is now halted for the day any time the market declines by 10 percent or more. 
D) Trading now stops for one hour any time the market declines by 10 percent. 
E) Congress decided not to pass any antitakeover legislation.

Question 19

Which one of the following involves the study of a firm's stock price for the few days surrounding a news announcement?

Accepted Answer

A) web survey 
B) market analysis 
C) event study 
D) auditing review 
E) trend study 
A) web survey 
B) market analysis 
C) event study 
D) auditing review 
E) trend study

Question 20

Which one of the following would best reveal how stock prices react when competitive firms merge?

Accepted Answer

A) financial analysis 
B) field testing 
C) risk analysis 
D) event study 
E) market survey 
A) financial analysis 
B) field testing 
C) risk analysis 
D) event study 
E) market survey

If the financial markets were regulated such that the markets maintained strong form efficiency, then:

You analyze a firm's financial statements and invest based upon the results of this analysis. Which form of market efficiency may exist if you are able to earn abnormal profits on these investments?

If the financial markets are highly efficient, then:

Which of the following sources of information are used by informed traders? I. financial statements II. inside information III. internet reports IV. analysts reports

Studies indicate that the Vanguard 500 Index fund tends to:

The January effect:

Over the time period of 1929 to 1932, the stock market lost approximately ________ percent of its value.

Which of the following is specifically cited as having led to the "dot-com" bubble and crash?

Which one of the following terms is used to describe a stock price that moves over time creating no discernible pattern?

Over the past 65 years, which day of the week, on average, has the lowest average rate of return?

Which of the following are offered as factors contributing to the Crash of October 1987? I. bubble bursting II. market volatility III. negative economic signals IV. activities in Congress

Stocks A, B, and C have identical risks. Stock A earns an annual return of 9.9 percent as compared to 9.6 percent returns on stocks B and C. Given this, you can correctly assume that:

Which one of the following best describes the current understanding of market efficiency?

Market timing tends to lead to:

The following are the daily returns for both the overall market and for Alpha, Inc. What is the cumulative abnormal return on Alpha, Inc., stock for these five days? Date R(m) Alpha 24- oct 1.508 1.308 25 -oct -.408 .208 26 -oct -.108 .508 27 -oct .308 -.208 28-0ct 608 -508

Which one of the following occurred following the Crash of 1987?

Which one of the following involves the study of a firm's stock price for the few days surrounding a news announcement?

Which one of the following would best reveal how stock prices react when competitive firms merge?

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 7: Stock Price Behavior and Market Efficiency

If the financial markets were regulated such that the markets maintained strong form efficiency, then:

You analyze a firm's financial statements and invest based upon the results of this analysis. Which form of market efficiency may exist if you are able to earn abnormal profits on these investments?

If the financial markets are highly efficient, then:

Which of the following sources of information are used by informed traders? I. financial statements II. inside information III. internet reports IV. analysts reports

Studies indicate that the Vanguard 500 Index fund tends to:

The January effect:

Over the time period of 1929 to 1932, the stock market lost approximately ________ percent of its value.

Which of the following is specifically cited as having led to the "dot-com" bubble and crash?

Which one of the following terms is used to describe a stock price that moves over time creating no discernible pattern?

Over the past 65 years, which day of the week, on average, has the lowest average rate of return?

Which of the following are offered as factors contributing to the Crash of October 1987? I. bubble bursting II. market volatility III. negative economic signals IV. activities in Congress

Stocks A, B, and C have identical risks. Stock A earns an annual return of 9.9 percent as compared to 9.6 percent returns on stocks B and C. Given this, you can correctly assume that:

Which one of the following best describes the current understanding of market efficiency?

Market timing tends to lead to:

The following are the daily returns for both the overall market and for Alpha, Inc. What is the cumulative abnormal return on Alpha, Inc., stock for these five days? Date R(m) Alpha 24- oct 1.508 1.308 25 -oct -.408 .208 26 -oct -.108 .508 27 -oct .308 -.208 28-0ct 608 -508

Which one of the following occurred following the Crash of 1987?

Which one of the following involves the study of a firm's stock price for the few days surrounding a news announcement?

Which one of the following would best reveal how stock prices react when competitive firms merge?

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters