Question 1

Which one of the following statements related to insider trading is correct?

Accepted Answer

A) Licensed stockbrokers are exempt from insider trading laws. 
B) Individuals, such as Martha Stewart, who have been convicted of crimes, can be barred from being executive officers of publicly traded companies. 
C) Because of the increased speed of information flows and the improved efficiency of the markets, insider trading laws were abolished in 2006. 
D) Martha Stewart was convicted of insider trading and subjected both to a fine and a jail sentence. 
E) An investor who receives advice from an investment advisor is automatically charged with insider trading when the advisor bases his recommendations on private information. 
A) Licensed stockbrokers are exempt from insider trading laws. 
B) Individuals, such as Martha Stewart, who have been convicted of crimes, can be barred from being executive officers of publicly traded companies. 
C) Because of the increased speed of information flows and the improved efficiency of the markets, insider trading laws were abolished in 2006. 
D) Martha Stewart was convicted of insider trading and subjected both to a fine and a jail sentence. 
E) An investor who receives advice from an investment advisor is automatically charged with insider trading when the advisor bases his recommendations on private information.

Question 2

Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?

Accepted Answer

A) market return 
B) abnormal return 
C) deviated return 
D) excessive return 
E) real return 
A) market return 
B) abnormal return 
C) deviated return 
D) excessive return 
E) real return

Question 3

Which one of the following will automatically occur if all investors are rational?

Accepted Answer

A) All stock prices will be equal. 
B) Equivalent risk assets will have equal expected rates of return. 
C) All investors will earn the market rate of return. 
D) All investors will earn the same rate of return. 
E) The riskier an asset, the higher its market price will be. 
A) All stock prices will be equal. 
B) Equivalent risk assets will have equal expected rates of return. 
C) All investors will earn the market rate of return. 
D) All investors will earn the same rate of return. 
E) The riskier an asset, the higher its market price will be.

Question 4

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

Accepted Answer

A) Leverage was one of the contributing factors of the Crash of 1929. 
B) "Black Monday" refers to October 29, 1929. 
C) Program trading is cited as the sole cause of the Crash of 1987. 
D) Generally speaking, market crashes tend to last longer than market bubbles. 
E) It took the market 10 years to recover from the Crash of 1987. 
A) Leverage was one of the contributing factors of the Crash of 1929. 
B) "Black Monday" refers to October 29, 1929. 
C) Program trading is cited as the sole cause of the Crash of 1987. 
D) Generally speaking, market crashes tend to last longer than market bubbles. 
E) It took the market 10 years to recover from the Crash of 1987.

Question 5

Dover Lumber announced last week that its unpopular CEO had resigned. In response to this announcement, the firm's stock price increased from $17 a share to $23 a share. The following day the price declined to $21 a share and has remained constant at that level. This is an example of a(n):

Accepted Answer

A) overreaction and correction. 
B) underpricing. 
C) delayed reaction. 
D) pre-activity action. 
E) efficient market reaction. 
A) overreaction and correction. 
B) underpricing. 
C) delayed reaction. 
D) pre-activity action. 
E) efficient market reaction.

Question 6

Samson Co. announced its merger plans on October 25 and had a daily return of .7 percent. Thompson Co. announced its merger plans on October 26 and had a daily return of .4 percent. The Whitewood Co. announced its merger plans on October 27 and had a daily return of .1 percent. The daily market returns for October 25 through October 27 were .1, −.3, and .4, respectively. What is the combined cumulative abnormal return for the announcement date?

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 7

Which form of market efficiency exists if the market is efficient only in regard to historical information?

Accepted Answer

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

Question 8

Arbitrage traders:

Accepted Answer

A) tend to be well capitalized. 
B) tend to be irrational investors. 
C) are dominated by irrational investors in an efficient market. 
D) lower the efficiency level of a market. 
E) sell only relatively inexpensive stocks. 
A) tend to be well capitalized. 
B) tend to be irrational investors. 
C) are dominated by irrational investors in an efficient market. 
D) lower the efficiency level of a market. 
E) sell only relatively inexpensive stocks.

Question 9

The following are the daily returns for both the overall market and for Coastal Engineering, Inc. What is the cumulative abnormal return on Coastal Engineering, Inc., stock for this five-day period?
$$\begin{array} { r r r } 
\text { Date } & \text { R(m) } & \text { Alpha } \
\text { 4-Aug } & 1.00\%& 1.10\% \
\text { 5-Aug } & - .30\% & .20\% \
\text { 6-Aug } & - .20\% & .30\%\
\text { 7-Aug } & .50 \% & - .30\% \
\text { 9-Aug } & .20\% & - .10\%
\end{array}$$

Accepted Answer

A) -1.2% 
B) -.5% 
C) 0% 
D) .2% 
E) 1.2% 
A) -1.2% 
B) -.5% 
C) 0% 
D) .2% 
E) 1.2%

Question 10

The common stock of Kimberlee Mfg. had daily returns of .2, −.1, .5, .4, and .3 percent, over the past five days, respectively. For the same five-day period, the market had daily returns of .1, .3, −.2, .5, and .1 percent, respectively. What is the cumulative abnormal return on Scott Mfg. stock for this time period?

Accepted Answer

A) −.5% 
B) −.2% 
C) .0% 
D) .2% 
E) .5% 
A) −.5% 
B) −.2% 
C) .0% 
D) .2% 
E) .5%

Question 11

The NYSE circuit breakers are recalculated:

Accepted Answer

A) every day. 
B) every week. 
C) monthly. 
D) every six months. 
E) annually. 
A) every day. 
B) every week. 
C) monthly. 
D) every six months. 
E) annually.

Question 12

In an efficient market, stocks with similar risks will:

Accepted Answer

A) have the same market price. 
B) pay similar dividends. 
C) yield the market rate of return. 
D) produce abnormal returns. 
E) have similar rates of return. 
A) have the same market price. 
B) pay similar dividends. 
C) yield the market rate of return. 
D) produce abnormal returns. 
E) have similar rates of return.

Question 13

Which one of the following terms is used to describe a market situation where prices are much higher than either fundamental or rational analysis would tend to support?

Accepted Answer

A) bear market 
B) cloud 
C) inversion 
D) bubble 
E) crash aversion 
A) bear market 
B) cloud 
C) inversion 
D) bubble 
E) crash aversion

Question 14

The day-of-the-week effect refers to which trading day?

Accepted Answer

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

Question 15

If the market is semistrong form efficient, then which one of the following statements is true?

Accepted Answer

A) Neither technical nor fundamental analysis leads to abnormal profits. 
B) Technical analysts have the ability to earn abnormal profits but fundamental analysts cannot. 
C) Fundamental analysts can earn abnormal profits but technical analysts cannot. 
D) Both technical and fundamental analysts earn abnormal profits based on their research. 
E) No answer can be determined as the form of market efficiency is unrelated to abnormal returns. 
A) Neither technical nor fundamental analysis leads to abnormal profits. 
B) Technical analysts have the ability to earn abnormal profits but fundamental analysts cannot. 
C) Fundamental analysts can earn abnormal profits but technical analysts cannot. 
D) Both technical and fundamental analysts earn abnormal profits based on their research. 
E) No answer can be determined as the form of market efficiency is unrelated to abnormal returns.

Question 16

Which one of the following terms is used to identify the NYSE rules which slow or stop trading when the DJIA declines by more than a specified amount during a trading session?

Accepted Answer

A) order flows 
B) market timers 
C) crash helmets 
D) circuit breakers 
E) trade barriers 
A) order flows 
B) market timers 
C) crash helmets 
D) circuit breakers 
E) trade barriers

Question 17

By the end of 2002, the AMEX Internet Index was at a level approximately equal to ________ percent of the index high.

Accepted Answer

A) 75 
B) 50 
C) 25 
D) 17 
E) 9 
A) 75 
B) 50 
C) 25 
D) 17 
E) 9

Question 18

From the end of 1989 to the spring of 2003, the Nikkei Index declined in value approximately ________ percent.

Accepted Answer

A) 50 
B) 60 
C) 70 
D) 80 
E) 90 
A) 50 
B) 60 
C) 70 
D) 80 
E) 90

Question 19

Which of the following is thought to have been the primary contributor to the Crash of October 2008?

Accepted Answer

A) quantitative easing 
B) activities in the judicial system 
C) qualitative easing 
D) commercial loan defaults 
E) subprime loan defaults 
A) quantitative easing 
B) activities in the judicial system 
C) qualitative easing 
D) commercial loan defaults 
E) subprime loan defaults

Question 20

Which one of the following statements is correct?

Accepted Answer

A) Professional money managers outperformed the Vanguard 500 Index Fund on an annual basis more than half the time for the period 1986-2014. 
B) Purchasing and holding a broad-based index fund is a highly recommended means of investing. 
C) The number of general equity mutual funds has decreased over the past 20 years due to their underperformance as compared to index funds. 
D) The survivorship bias lowers the returns earned by professional money managers as a group. 
E) In an efficient market, there is no need for professional money managers. 
A) Professional money managers outperformed the Vanguard 500 Index Fund on an annual basis more than half the time for the period 1986-2014. 
B) Purchasing and holding a broad-based index fund is a highly recommended means of investing. 
C) The number of general equity mutual funds has decreased over the past 20 years due to their underperformance as compared to index funds. 
D) The survivorship bias lowers the returns earned by professional money managers as a group. 
E) In an efficient market, there is no need for professional money managers.

Which one of the following statements related to insider trading is correct?

Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?

Which one of the following will automatically occur if all investors are rational?

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

Dover Lumber announced last week that its unpopular CEO had resigned. In response to this announcement, the firm's stock price increased from $17 a share to $23 a share. The following day the price declined to $21 a share and has remained constant at that level. This is an example of a(n):

Which form of market efficiency exists if the market is efficient only in regard to historical information?

Arbitrage traders:

The NYSE circuit breakers are recalculated:

In an efficient market, stocks with similar risks will:

Which one of the following terms is used to describe a market situation where prices are much higher than either fundamental or rational analysis would tend to support?

The day-of-the-week effect refers to which trading day?

If the market is semistrong form efficient, then which one of the following statements is true?

Which one of the following terms is used to identify the NYSE rules which slow or stop trading when the DJIA declines by more than a specified amount during a trading session?

By the end of 2002, the AMEX Internet Index was at a level approximately equal to ________ percent of the index high.

From the end of 1989 to the spring of 2003, the Nikkei Index declined in value approximately ________ percent.

Which of the following is thought to have been the primary contributor to the Crash of October 2008?

Which one of the following statements is correct?

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

Which one of the following statements related to insider trading is correct?

Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?

Which one of the following will automatically occur if all investors are rational?

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

Dover Lumber announced last week that its unpopular CEO had resigned. In response to this announcement, the firm's stock price increased from $17 a share to $23 a share. The following day the price declined to $21 a share and has remained constant at that level. This is an example of a(n):

Which form of market efficiency exists if the market is efficient only in regard to historical information?

Arbitrage traders:

The NYSE circuit breakers are recalculated:

In an efficient market, stocks with similar risks will:

Which one of the following terms is used to describe a market situation where prices are much higher than either fundamental or rational analysis would tend to support?

The day-of-the-week effect refers to which trading day?

If the market is semistrong form efficient, then which one of the following statements is true?

Which one of the following terms is used to identify the NYSE rules which slow or stop trading when the DJIA declines by more than a specified amount during a trading session?

By the end of 2002, the AMEX Internet Index was at a level approximately equal to ________ percent of the index high.

From the end of 1989 to the spring of 2003, the Nikkei Index declined in value approximately ________ percent.

Which of the following is thought to have been the primary contributor to the Crash of October 2008?

Which one of the following statements is correct?

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