Question 1

According to the strong-form efficient market hypothesis,stock prices fully reflect

Accepted Answer

A)  All security market information only. 
B)  All public information only. 
C)  All public and private information only. 
D)  All of the above. 
E)  None of the above. 
A)  All security market information only. 
B)  All public information only. 
C)  All public and private information only. 
D)  All of the above. 
E)  None of the above.

Question 2

Exhibit 6.6
Use the Information Below for the Following Problem(S)
 $$\begin{array} { c c c c c } 
\text { itack } & \text { Re } & \text { it } & \text { mit } & \text { Het. } \
\hline \text { A } & 9.7 & 10.0 & 0 & 0.7 \
8 & 10.4 & 8.0 & 0 & 1.4
\end{array}$$ 
R?S1U1B1tS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 6.6.What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)?

Accepted Answer

A)  -2.3% 
B)  -0.3% 
C)  0.3% 
D)  2.3% 
E)  3.0% 
A)  -2.3% 
B)  -0.3% 
C)  0.3% 
D)  2.3% 
E)  3.0%

Question 3

An efficient market requires a large number of profit-maximizing investors.

Accepted Answer

A) True 
 B)False

Question 4

Based on Stock Z's beta of 0.9 the normal return is 9%.However,the actual return for Stock Z was 8%.What is Stock Z's abnormal rate of return?

Accepted Answer

A)  -1.0% 
B)  -0.1% 
C)  0.1% 
D)  1.0% 
E)  1.1% 
A)  -1.0% 
B)  -0.1% 
C)  0.1% 
D)  1.0% 
E)  1.1%

Question 5

The performance of four major groups of investors has been studied in connection with tests of the strong-form of the efficient market hypothesis.These include all of the following except

Accepted Answer

A)  Professional money managers. 
B)  Stock exchange specialists. 
C)  Securities Exchange officers. 
D)  Security analysts. 
E)  Corporate insiders. 
A)  Professional money managers. 
B)  Stock exchange specialists. 
C)  Securities Exchange officers. 
D)  Security analysts. 
E)  Corporate insiders.

Question 6

Technical analysis and the efficient market hypothesis have a consistent set of assumptions concerning stock market behavior.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 6.5
Use the Information Below for the Following Problem(S)
 $\begin{array}{ccccc}
\text { Stock } & \mathbf{R}_{\mathbf{i t}} & \mathbf{R}_{\text {mt }} & \mathbf{a}_{\mathbf{i}} & \mathbf{B e t a} \
\hline \mathrm{A} & 10.6 & 15 & 0 & 0.8 \
7 & 9.8 & 8 .0 & n & 1.1
\end{array}$ 
R?t = return for stock i during period t
Rmt = return for the aggregate market during period t
-Refer to Exhibit 6.5.What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)?

Accepted Answer

A)  3.40 
B)  4.40 
C)  -1.86 
D)  -4.40 
E)  -1.70 
A)  3.40 
B)  4.40 
C)  -1.86 
D)  -4.40 
E)  -1.70

Question 8

The strong form of the efficient market hypothesis contends that only insiders can earn abnormal returns.

Accepted Answer

A) True 
 B)False

Question 9

There is empirical evidence that low P/E stocks have outperformed high P/E stocks for some historical time periods.

Accepted Answer

A) True 
 B)False

Question 10

Fusion investing refers to the combination of

Accepted Answer

A)  Technical analysis and fundamental analysis. 
B)  Behavioral analysis and technical analysis. 
C)  Fundamental analysis and investor sentiment. 
D)  Technical analysis and investor sentiment. 
E)  All of the above 
A)  Technical analysis and fundamental analysis. 
B)  Behavioral analysis and technical analysis. 
C)  Fundamental analysis and investor sentiment. 
D)  Technical analysis and investor sentiment. 
E)  All of the above

Question 11

The weak form of the efficient market hypothesis states that

Accepted Answer

A)  Successive price changes are dependent. 
B)  Successive price changes are independent. 
C)  Successive price changes are biased. 
D)  Successive price changes depend on trading volume. 
E)  Properly specified trading rules are of value. 
A)  Successive price changes are dependent. 
B)  Successive price changes are independent. 
C)  Successive price changes are biased. 
D)  Successive price changes depend on trading volume. 
E)  Properly specified trading rules are of value.

Question 12

The results of return prediction studies have found

Accepted Answer

A)  Limited success predicting short-horizon returns. 
B)  Limited success predicting long-horizon returns. 
C)  Good success predicting long-horizon returns. 
D)  a and b. 
E)  a and c. 
A)  Limited success predicting short-horizon returns. 
B)  Limited success predicting long-horizon returns. 
C)  Good success predicting long-horizon returns. 
D)  a and b. 
E)  a and c.

Question 13

Investigators have tested the strong form EMH by examining the performance of the following type of investor:

Accepted Answer

A)  Corporate insiders. 
B)  Stock exchange specialists. 
C)  Security analysts. 
D)  Professional money managers. 
E)  All of the above. 
A)  Corporate insiders. 
B)  Stock exchange specialists. 
C)  Security analysts. 
D)  Professional money managers. 
E)  All of the above.

Question 14

All of the following are underlying assumptions of the capital asset pricing model (CAPM)except:

Accepted Answer

A)  A large number of profit-maximizing participants analyze and value securities. 
B)  New information enters the market in a random fashion 
C)  Security prices adjust rapidly to reflect the effect of new information 
D)  Expected returns implicit in the current price of the security reflect its risk 
E)  All of the above are assumptions of the CAPM 
A)  A large number of profit-maximizing participants analyze and value securities. 
B)  New information enters the market in a random fashion 
C)  Security prices adjust rapidly to reflect the effect of new information 
D)  Expected returns implicit in the current price of the security reflect its risk 
E)  All of the above are assumptions of the CAPM

Question 15

The implication of efficient capital markets and a lack of superior analysts have led to the introduction of

Accepted Answer

A)  Balanced funds. 
B)  Naive funds. 
C)  January funds. 
D)  Index funds. 
E)  Futures options. 
A)  Balanced funds. 
B)  Naive funds. 
C)  January funds. 
D)  Index funds. 
E)  Futures options.

Question 16

The January anomaly refers to the phenomenon where stock prices

Accepted Answer

A)  Decline in December. 
B)  Decline in January. 
C)  Rise in January. 
D)  Decline in December and rise in January. 
E)  Rise in December and decline in January. 
A)  Decline in December. 
B)  Decline in January. 
C)  Rise in January. 
D)  Decline in December and rise in January. 
E)  Rise in December and decline in January.

Question 17

Examples of anomalies providing contrary evidence to the semi-strong efficient market hypothesis include studies of all of the following except

Accepted Answer

A)  Quarterly earnings reports. 
B)  Price earnings ratios. 
C)  Total market value. 
D)  Stocks ranked by Standard & Poor's. 
E)  The January effect. 
A)  Quarterly earnings reports. 
B)  Price earnings ratios. 
C)  Total market value. 
D)  Stocks ranked by Standard & Poor's. 
E)  The January effect.

Question 18

Studies of the relationship between P/E ratios and stock returns have found that

Accepted Answer

A)  Low P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks. 
B)  Low P/E stocks of small cap stocks outperformed high P/E stocks of large cap stocks. 
C)  High P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks. 
D)  High P/E stocks of large cap stocks outperformed high P/E stocks of small cap stocks. 
E)  none of the above. 
A)  Low P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks. 
B)  Low P/E stocks of small cap stocks outperformed high P/E stocks of large cap stocks. 
C)  High P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks. 
D)  High P/E stocks of large cap stocks outperformed high P/E stocks of small cap stocks. 
E)  none of the above.

Question 19

Exhibit 6.1
Use the Information Below for the Following Problem(S)
 $\begin{array}{ccccc}
\text { Stock } & \mathbf{R}_{\text {it }} & \mathbf{R}_{\text {mt }} & \mathbf{a}_{\mathbf{i}} & \text { Beta } \
\hline \mathrm{C} & 12 & 10 & 0 & 0.8 \
\mathrm{~F} & 10 & 80 & 0 & 1.1
\end{array}$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 6.1.What is the abnormal rate of return for Stock E when you consider its systematic risk measure (beta)?

Accepted Answer

A)  2.0% 
B)  1.2% 
C)  4.0% 
D)  -1.05% 
E)  -8.5% 
A)  2.0% 
B)  1.2% 
C)  4.0% 
D)  -1.05% 
E)  -8.5%

Question 20

A "runs test" on successive stock price changes which supports the efficient market hypothesis would show the actual number of runs

Accepted Answer

A)  Falls into the range expected of a random series. 
B)  Falls into the range expected of a dependent series. 
C)  Is small. 
D)  Is large. 
E)  Would approximate N/2. 
A)  Falls into the range expected of a random series. 
B)  Falls into the range expected of a dependent series. 
C)  Is small. 
D)  Is large. 
E)  Would approximate N/2.

Exam 6: Efficient Capital Markets

According to the strong-form efficient market hypothesis,stock prices fully reflect

An efficient market requires a large number of profit-maximizing investors.

Based on Stock Z's beta of 0.9 the normal return is 9%.However,the actual return for Stock Z was 8%.What is Stock Z's abnormal rate of return?

The performance of four major groups of investors has been studied in connection with tests of the strong-form of the efficient market hypothesis.These include all of the following except

Technical analysis and the efficient market hypothesis have a consistent set of assumptions concerning stock market behavior.

The strong form of the efficient market hypothesis contends that only insiders can earn abnormal returns.

There is empirical evidence that low P/E stocks have outperformed high P/E stocks for some historical time periods.

Fusion investing refers to the combination of

The weak form of the efficient market hypothesis states that

The results of return prediction studies have found

Investigators have tested the strong form EMH by examining the performance of the following type of investor:

All of the following are underlying assumptions of the capital asset pricing model (CAPM)except:

The implication of efficient capital markets and a lack of superior analysts have led to the introduction of

The January anomaly refers to the phenomenon where stock prices

Examples of anomalies providing contrary evidence to the semi-strong efficient market hypothesis include studies of all of the following except

Studies of the relationship between P/E ratios and stock returns have found that

A "runs test" on successive stock price changes which supports the efficient market hypothesis would show the actual number of runs

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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