Question 1

Which one of the following returns is computed as the observed return minus the expected return?

Accepted Answer

A) visible 
B) distinct 
C) abnormal 
D) subjective 
E) efficient 
A) visible 
B) distinct 
C) abnormal 
D) subjective 
E) efficient

Question 2

Ace. Pharmaceutical announced FDA approval for a new drug on December 3. West Drug Co. announced approval for its new drug on December 5. No other information was released that would affect returns over the period. What is the combined cumulative abnormal return for the five-day period commencing two days prior to the approval announcement date? Use the following data to answer this question. No trading occurred on December 6 and 7.
$\begin{array}{rrrr}
\text { Date}& \text {Market}& \text { Ace Return }& \text {West Returr }\
1 \text {-Dec } & .30\% & .10\% & .10\% \
2 \text {-Dec } & .20\% & .20\% & -.20\% \
3 \text {-Dec } & .10\% & .70\% & .30\% \
4 \text {-Dec } & .00\% & .50\% & .20\% \
5 \text {-Dec } & -.10\%& -.40\%& .40\% \
8 \text {-Dec } & .10\% & -.30\% & -.10\% \
9\text { -Dec } & -.20\% & -.10\% & -.20\%
\end{array}$

Accepted Answer

A) .6% 
B) 1.0% 
C) 1.1% 
D) 1.2% 
E) 1.3% 
A) .6% 
B) 1.0% 
C) 1.1% 
D) 1.2% 
E) 1.3%

Question 3

Which of the following will lead to abnormal profits in a semistrong form efficient market?
I. private financial information
II. historical price trends
III. financial analysts reports
IV. unreleased merger plans

Accepted Answer

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

Question 4

Which one of the following terms best describes the information you know about a company that will have a significant effect on the price of the company's stock once that information is released?

Accepted Answer

A) material public information 
B) public information 
C) abnormal information 
D) private, non-material information 
E) material nonpublic information 
A) material public information 
B) public information 
C) abnormal information 
D) private, non-material information 
E) material nonpublic information

Question 5

Over the past five days, the common stock of Scott Mfg. had daily returns of .3, −.2, .3, .1, and .1 percent, respectively. For the same five days, the market had daily returns of .2, .4, −.5, .3, and .1 percent, respectively. What is the cumulative abnormal return on Scott 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 6

Tom is an engineer for Talbot Tech and has just discovered a revolutionary method for strengthening metals. He knows this knowledge will add value to Talbot Tech's stock. Tom happens to mention this discovery and its value to his neighbor, Fred. Fred can be charged with insider trading if he:

Accepted Answer

A) continues to hold the Talbot Tech shares of stock he already owns. 
B) shares this information with another neighbor. 
C) sells his shares in Talbot Tech immediately after the news of the discovery is announced. 
D) provides this information to a friend who will trade the stock and split the profits with him. 
E) buys shares in Talbot Tech immediately after the news is announced and then shortly thereafter sells the shares at a profit. 
A) continues to hold the Talbot Tech shares of stock he already owns. 
B) shares this information with another neighbor. 
C) sells his shares in Talbot Tech immediately after the news of the discovery is announced. 
D) provides this information to a friend who will trade the stock and split the profits with him. 
E) buys shares in Talbot Tech immediately after the news is announced and then shortly thereafter sells the shares at a profit.

Which one of the following returns is computed as the observed return minus the expected return?

Which of the following will lead to abnormal profits in a semistrong form efficient market? I. private financial information II. historical price trends III. financial analysts reports IV. unreleased merger plans

Which one of the following terms best describes the information you know about a company that will have a significant effect on the price of the company's stock once that information is released?

Tom is an engineer for Talbot Tech and has just discovered a revolutionary method for strengthening metals. He knows this knowledge will add value to Talbot Tech's stock. Tom happens to mention this discovery and its value to his neighbor, Fred. Fred can be charged with insider trading if he:

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 returns is computed as the observed return minus the expected return?

Which of the following will lead to abnormal profits in a semistrong form efficient market? I. private financial information II. historical price trends III. financial analysts reports IV. unreleased merger plans

Which one of the following terms best describes the information you know about a company that will have a significant effect on the price of the company's stock once that information is released?

Tom is an engineer for Talbot Tech and has just discovered a revolutionary method for strengthening metals. He knows this knowledge will add value to Talbot Tech's stock. Tom happens to mention this discovery and its value to his neighbor, Fred. Fred can be charged with insider trading if he:

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