Question 1

The semistrong form of the efficient market hypothesis states that:

Accepted Answer

A)  all information is reflected in the price of securities. 
B)  security prices reflect all publicly available information. 
C)  future prices are predictable. 
D)  Both all information is reflected in the price of securities; and future prices are predictable. 
E)  None of these. 
A)  all information is reflected in the price of securities. 
B)  security prices reflect all publicly available information. 
C)  future prices are predictable. 
D)  Both all information is reflected in the price of securities; and future prices are predictable. 
E)  None of these. B

Question 2

The U.S. Securities and Exchange Commission periodically charges individuals for insider trading and claims those individuals have made unfair profits. Based on this fact,you would tend to argue that the financial markets are at best _____ form efficient.

Accepted Answer

A)  weak 
B)  semiweak 
C)  semistrong 
D)  strong 
E)  perfect 
A)  weak 
B)  semiweak 
C)  semistrong 
D)  strong 
E)  perfect C

Question 3

Financial managers can create value through financing decisions that:

Accepted Answer

A)  reduce costs or increase subsidies. 
B)  increase the product prices. 
C)  create a new security. 
D)  Both reduce costs or increase subsidies; and increase the product prices. 
E)  Both reduce costs or increase subsidies; and create a new security. 
A)  reduce costs or increase subsidies. 
B)  increase the product prices. 
C)  create a new security. 
D)  Both reduce costs or increase subsidies; and increase the product prices. 
E)  Both reduce costs or increase subsidies; and create a new security. E

Question 4

An efficient capital market is one in which:

Accepted Answer

A)  brokerage commissions are zero. 
B)  taxes are irrelevant. 
C)  securities always offer a positive rate of return to investors. 
D)  security prices are guaranteed by the U.S. Securities and Exchange Commission to be fair. 
E)  security prices reflect available information. 
A)  brokerage commissions are zero. 
B)  taxes are irrelevant. 
C)  securities always offer a positive rate of return to investors. 
D)  security prices are guaranteed by the U.S. Securities and Exchange Commission to be fair. 
E)  security prices reflect available information.

Question 5

Do you think the lessons from capital market history will hold for each year in the future?
That is,as an example,if you buy small stocks will your investment always outperform
U.S. Treasury bonds?

Accepted Answer

The student should realize that we are w

Question 6

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise. This contrary evidence happens because:

Accepted Answer

A)  markets are inefficient and unsure of the real value of the events. 
B)  death is inevitable and market prices are random. 
C)  things simply happen. 
D)  the value of the founding executive was a negative to the firm. 
E)  None of these. 
A)  markets are inefficient and unsure of the real value of the events. 
B)  death is inevitable and market prices are random. 
C)  things simply happen. 
D)  the value of the founding executive was a negative to the firm. 
E)  None of these.

Question 7

Event studies have been used to examine:

Accepted Answer

A)  IPOs, SEOs, and other equity issuances. 
B)  changes in earnings. 
C)  mergers and acquisitions. 
D)  most financial events. 
E)  All of 
A)  IPOs, SEOs, and other equity issuances. 
B)  changes in earnings. 
C)  mergers and acquisitions. 
D)  most financial events. 
E)  All of

Question 8

Under the concept of an efficient market,a random walk in stock prices means that:

Accepted Answer

A)  there is no driving force behind price changes. 
B)  technical analysts can predict future price movements to earn excess returns. 
C)  the unexplained portion of price change in one period is unrelated to the unexplained portion of price change in any other period. 
D)  the unexplained portion of price change in one period that cannot be explained by expected return can only be explained by the unexplained portion of price change in a prior period. 
E)  None of these. 
A)  there is no driving force behind price changes. 
B)  technical analysts can predict future price movements to earn excess returns. 
C)  the unexplained portion of price change in one period is unrelated to the unexplained portion of price change in any other period. 
D)  the unexplained portion of price change in one period that cannot be explained by expected return can only be explained by the unexplained portion of price change in a prior period. 
E)  None of these.

Question 9

If the weak form of efficient markets holds,then:

Accepted Answer

A)  technical analysis is useless. 
B)  stock prices reflect all information contained in past prices. 
C)  stock prices follow a random walk. 
D)  All of these. 
E)  None of these. 
A)  technical analysis is useless. 
B)  stock prices reflect all information contained in past prices. 
C)  stock prices follow a random walk. 
D)  All of these. 
E)  None of these.

Question 10

Ritter's study of Initial Public Offerings (IPOs) showed that the post offering stock performance was:

Accepted Answer

A)  less than the control group by about 2% in the five years following the IPO. 
B)  incorrectly priced at issuance because over the next five years the abnormal returns were greater than zero on average. 
C)  immaterial to the pricing of the IPO because future market performance is unknown at issuance. 
D)  equal across IPOs, irrespective of risk or which year they were issued. 
E)  All of 
A)  less than the control group by about 2% in the five years following the IPO. 
B)  incorrectly priced at issuance because over the next five years the abnormal returns were greater than zero on average. 
C)  immaterial to the pricing of the IPO because future market performance is unknown at issuance. 
D)  equal across IPOs, irrespective of risk or which year they were issued. 
E)  All of

Question 11

Suppose your cousin invests in the stock market and doubles her money in a single year while the market,on average,earned a return of only about 15%. Is your cousin's performance a violation of market efficiency?

Accepted Answer

No,market efficiency does not preclude i

Question 12

If the efficient market hypothesis holds,investors should expect:

Accepted Answer

A)  to earn only a normal return. 
B)  to receive a fair price for their securities. 
C)  to always be able to pick stocks that will outperform the market averages. 
D)  Both to earn only a normal return; and to receive a fair price for their securities. 
E)  Both to receive a fair price for their securities; and to always be able to pick stocks that will outperform the market averages. 
A)  to earn only a normal return. 
B)  to receive a fair price for their securities. 
C)  to always be able to pick stocks that will outperform the market averages. 
D)  Both to earn only a normal return; and to receive a fair price for their securities. 
E)  Both to receive a fair price for their securities; and to always be able to pick stocks that will outperform the market averages.

Question 13

Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?

Accepted Answer

Good answers to this question might indi

Question 14

The market price of a stock moves or fluctuates daily. This fluctuation is:

Accepted Answer

A)  inconsistent with the semistrong efficient market hypothesis because prices should be stable. 
B)  inconsistent with the weak form efficient market hypothesis because all past information should be priced in. 
C)  consistent with the semistrong form of the efficient market hypothesis because as new information arrives daily prices will adjust to it. 
D)  consistent with the strong form because prices are controlled by insiders. 
E)  None of these. 
A)  inconsistent with the semistrong efficient market hypothesis because prices should be stable. 
B)  inconsistent with the weak form efficient market hypothesis because all past information should be priced in. 
C)  consistent with the semistrong form of the efficient market hypothesis because as new information arrives daily prices will adjust to it. 
D)  consistent with the strong form because prices are controlled by insiders. 
E)  None of these.

Question 15

If the financial markets are efficient,then investors should expect their investments in those markets to:

Accepted Answer

A)  earn extraordinary returns on a routine basis. 
B)  generally have positive net present values. 
C)  generally have zero net present values. 
D)  produce arbitrage opportunities on a routine basis. 
E)  produce negative returns on a routine basis. 
A)  earn extraordinary returns on a routine basis. 
B)  generally have positive net present values. 
C)  generally have zero net present values. 
D)  produce arbitrage opportunities on a routine basis. 
E)  produce negative returns on a routine basis.

Question 16

In the five years after the offering,______ underperform matched control groups.

Accepted Answer

A)  initial public offerings 
B)  seasoned equity offerings 
C)  bond offerings 
D)  initial public offerings and seasoned equity offerings 
E)  initial public offerings; seasoned equity offerings; and bond offerings 
A)  initial public offerings 
B)  seasoned equity offerings 
C)  bond offerings 
D)  initial public offerings and seasoned equity offerings 
E)  initial public offerings; seasoned equity offerings; and bond offerings

Question 17

Which of the following tend to reinforce the argument that the financial markets are efficient?
I. Information spreads rapidly in today's world.
II. There is tremendous competition in the financial markets.
III. Market prices continually fluctuate.
IV. Market prices react suddenly to unexpected news announcements.

Accepted Answer

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

Question 18

An investor discovers that for a certain group of stocks,large positive price changes are always followed by large negative price changes. This finding is a violation of the:

Accepted Answer

A)  moderate form of the efficient market hypothesis. 
B)  semistrong form of the efficient market hypothesis. 
C)  strong form of the efficient market hypothesis. 
D)  weak form of the efficient market hypothesis. 
E)  None of these. 
A)  moderate form of the efficient market hypothesis. 
B)  semistrong form of the efficient market hypothesis. 
C)  strong form of the efficient market hypothesis. 
D)  weak form of the efficient market hypothesis. 
E)  None of these.

Question 19

Which form of the efficient market hypothesis implies that security prices reflect only information contained in past prices?

Accepted Answer

A)  Weak form 
B)  Semistrong form 
C)  Strong form 
D)  Hard form 
E)  Past form 
A)  Weak form 
B)  Semistrong form 
C)  Strong form 
D)  Hard form 
E)  Past form

Question 20

If a market is strong form efficient,it also implies that:

Accepted Answer

A)  semistrong form efficiency holds. 
B)  weak form efficiency holds. 
C)  one cannot earn abnormal returns with inside information. 
D)  Both semistrong form efficiency holds; and one cannot earn abnormal returns with inside information. 
E)  semistrong form efficiency holds; and weak form efficiency holds; and one cannot earn abnormal returns with inside information. 
A)  semistrong form efficiency holds. 
B)  weak form efficiency holds. 
C)  one cannot earn abnormal returns with inside information. 
D)  Both semistrong form efficiency holds; and one cannot earn abnormal returns with inside information. 
E)  semistrong form efficiency holds; and weak form efficiency holds; and one cannot earn abnormal returns with inside information.

Exam 14: Efficient Capital Markets and Behavioral Challenges

The semistrong form of the efficient market hypothesis states that:

The U.S. Securities and Exchange Commission periodically charges individuals for insider trading and claims those individuals have made unfair profits. Based on this fact,you would tend to argue that the financial markets are at best _____ form efficient.

Financial managers can create value through financing decisions that:

An efficient capital market is one in which:

Do you think the lessons from capital market history will hold for each year in the future? That is,as an example,if you buy small stocks will your investment always outperform U.S. Treasury bonds?

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise. This contrary evidence happens because:

Event studies have been used to examine:

Under the concept of an efficient market,a random walk in stock prices means that:

If the weak form of efficient markets holds,then:

Ritter's study of Initial Public Offerings (IPOs) showed that the post offering stock performance was:

Suppose your cousin invests in the stock market and doubles her money in a single year while the market,on average,earned a return of only about 15%. Is your cousin's performance a violation of market efficiency?

If the efficient market hypothesis holds,investors should expect:

Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?

The market price of a stock moves or fluctuates daily. This fluctuation is:

If the financial markets are efficient,then investors should expect their investments in those markets to:

In the five years after the offering,______ underperform matched control groups.

An investor discovers that for a certain group of stocks,large positive price changes are always followed by large negative price changes. This finding is a violation of the:

Which form of the efficient market hypothesis implies that security prices reflect only information contained in past prices?

If a market is strong form efficient,it also implies that:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

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