Question 1

How should cumulative abnormal returns react in an efficient market?

Accepted Answer

A)  relatively constant, sharp break, relatively constant 
B)  relatively constant with no breaks 
C)  steadily increasing 
D)  steadily decreasing 
E)  remain constant at zero 
A)  relatively constant, sharp break, relatively constant 
B)  relatively constant with no breaks 
C)  steadily increasing 
D)  steadily decreasing 
E)  remain constant at zero

Question 2

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 3

Which one of the following correctly identifies the phenomenon that states that one month has the greatest tendency for small stocks to earn large returns?

Accepted Answer

A)  January effect 
B)  March effect 
C)  September effect 
D)  October effect 
E)  December effect 
A)  January effect 
B)  March effect 
C)  September effect 
D)  October effect 
E)  December effect

Question 4

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 5 day period commencing 2 days prior to the approval announcement date? Use the following data to answer this question.No trading occurred on December 6th and 7th.

Accepted Answer

A)  0.6 percent 
B)  1.0 percent 
C)  1.1 percent 
D)  1.2 percent 
E)  1.3 percent 
A)  0.6 percent 
B)  1.0 percent 
C)  1.1 percent 
D)  1.2 percent 
E)  1.3 percent

Question 5

You are the chief financial officer of Davidson Industries.On multiple occasions,you have engaged in insider trading but have never been able to earn any abnormal returns.Which form of market efficiency most likely exists given your situation?

Accepted Answer

A)  mild-form 
B)  weak-form 
C)  historical-form 
D)  semi-strong form 
E)  strong-form 
A)  mild-form 
B)  weak-form 
C)  historical-form 
D)  semi-strong form 
E)  strong-form

Question 6

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 7

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 8

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 9

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 which can be used to earn abnormal returns. 
B)  Markets under-react to unanticipated events in a manner which can be used to earn excess 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 which can be used to earn abnormal returns. 
B)  Markets under-react to unanticipated events in a manner which can be used to earn excess 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 10

If the S&P 500 falls by 20 percent,the NYSE will:

Accepted Answer

A)  do nothing if the drop occurs after 2:30 p.m. 
B)  halt trading for one hour. 
C)  halt trading for one hour if the decline occurs before 3 p.m. 
D)  halt trading for one-half hour if the decline occurs after noon. 
E)  cease trading for the day. 
A)  do nothing if the drop occurs after 2:30 p.m. 
B)  halt trading for one hour. 
C)  halt trading for one hour if the decline occurs before 3 p.m. 
D)  halt trading for one-half hour if the decline occurs after noon. 
E)  cease trading for the day.

Question 11

The NYSE circuit breakers are recalculated:

Accepted Answer

A)  every day 
B)  every week 
C)  monthly 
D)  every 6 months 
E)  annually 
A)  every day 
B)  every week 
C)  monthly 
D)  every 6 months 
E)  annually

Question 12

Which one of the following is a research method used to study the effects news has on stock prices?

Accepted Answer

A)  polarization 
B)  market analysis 
C)  event study 
D)  news theory 
E)  reaction hypothesis 
A)  polarization 
B)  market analysis 
C)  event study 
D)  news theory 
E)  reaction hypothesis

Question 13

Over the past 5 days,the common stock of Scott Mfg.had daily returns of 0.3,-0.2,0.3,0.1,and 0.1 percent,respectively.For the same 5 days,the market had daily returns of 0.2,0.4,-0.5,0.3,and 0.1 percent,respectively.What is the cumulative abnormal return on Scott Mfg.stock for this time period?

Accepted Answer

A)  -0.3 percent 
B)  -0.1 percent 
C)  0.0 percent 
D)  0.1 percent 
E)  0.3 percent 
A)  -0.3 percent 
B)  -0.1 percent 
C)  0.0 percent 
D)  0.1 percent 
E)  0.3 percent

Question 14

Ann uses two approaches to trading stocks.First,she trades on what she believes is a repetitive pattern as seen in Dotson Co's historical prices.Secondly,she analyzes the financial statements of The Allen Co.to compute changes in the return on equity as a predictor of future stock prices for that firm.She trades based on both strategies.Ann earns excess profits on her return on equity strategy but not on her historical prices strategy.This suggests that the market is at least ________ efficient but less than ________ efficient.

Accepted Answer

A)  weak-form; mild-form 
B)  mild-form; semistrong-form 
C)  weak-form; semistrong-form 
D)  semistrong-form; full-form 
E)  semistrong-form; strong-form 
A)  weak-form; mild-form 
B)  mild-form; semistrong-form 
C)  weak-form; semistrong-form 
D)  semistrong-form; full-form 
E)  semistrong-form; strong-form

Question 15

The following are the daily returns for both the overall market and for Omega Inc.What is the cumulative abnormal return on Omega,Inc.,stock for these 5 days?

Accepted Answer

A)  -0.8 percent 
B)  -0.5 percent 
C)  -0.1 percent 
D)  0.2 percent 
E)  0.5 percent 
A)  -0.8 percent 
B)  -0.5 percent 
C)  -0.1 percent 
D)  0.2 percent 
E)  0.5 percent

Question 16

The value of the Amex Internet Index increased by about ________ percent from October 1998 to March 2000 and subsequently declined by about ________ percent by October 2002.

Accepted Answer

A)  100; 50 
B)  200; 75 
C)  400; 80 
D)  500; 90 
E)  600; 80 
A)  100; 50 
B)  200; 75 
C)  400; 80 
D)  500; 90 
E)  600; 80

Question 17

Which type of trader is defined as one who decides to trade securities based on publicly available information and analysis?

Accepted Answer

A)  public 
B)  informed 
C)  normal 
D)  inside 
E)  block 
A)  public 
B)  informed 
C)  normal 
D)  inside 
E)  block

Question 18

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 5 days?

Accepted Answer

A)  -0.8 percent 
B)  -0.4 percent 
C)  -0.1 percent 
D)  0.2 percent 
E)  0.5 percent 
A)  -0.8 percent 
B)  -0.4 percent 
C)  -0.1 percent 
D)  0.2 percent 
E)  0.5 percent

Question 19

If you believe that stock market prices follow a random walk,then:

Accepted Answer

A)  historical price information provides no benefit in predicting future prices. 
B)  there is no financial benefit from investing in the stock market. 
C)  having inside information will not lead to excess profits. 
D)  studying past price movements will lead to excess profits. 
E)  you also believe the market is strong-form efficient. 
A)  historical price information provides no benefit in predicting future prices. 
B)  there is no financial benefit from investing in the stock market. 
C)  having inside information will not lead to excess profits. 
D)  studying past price movements will lead to excess profits. 
E)  you also believe the market is strong-form efficient.

Question 20

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

How should cumulative abnormal returns react in an efficient market?

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

Which one of the following correctly identifies the phenomenon that states that one month has the greatest tendency for small stocks to earn large returns?

You are the chief financial officer of Davidson Industries.On multiple occasions,you have engaged in insider trading but have never been able to earn any abnormal returns.Which form of market efficiency most likely exists given your situation?

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

The January effect:

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 best describes the current understanding of market efficiency?

If the S&P 500 falls by 20 percent,the NYSE will:

The NYSE circuit breakers are recalculated:

Which one of the following is a research method used to study the effects news has on stock prices?

Over the past 5 days,the common stock of Scott Mfg.had daily returns of 0.3,-0.2,0.3,0.1,and 0.1 percent,respectively.For the same 5 days,the market had daily returns of 0.2,0.4,-0.5,0.3,and 0.1 percent,respectively.What is the cumulative abnormal return on Scott Mfg.stock for this time period?

The following are the daily returns for both the overall market and for Omega Inc.What is the cumulative abnormal return on Omega,Inc.,stock for these 5 days?

The value of the Amex Internet Index increased by about percent from October 1998 to March 2000 and subsequently declined by about percent by October 2002.

Which type of trader is defined as one who decides to trade securities based on publicly available information and analysis?

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 5 days?

If you believe that stock market prices follow a random walk,then:

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

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

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

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 7: Stock Price Behavior and Market Efficiency

How should cumulative abnormal returns react in an efficient market?

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

Which one of the following correctly identifies the phenomenon that states that one month has the greatest tendency for small stocks to earn large returns?

You are the chief financial officer of Davidson Industries.On multiple occasions,you have engaged in insider trading but have never been able to earn any abnormal returns.Which form of market efficiency most likely exists given your situation?

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

The January effect:

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 best describes the current understanding of market efficiency?

If the S&P 500 falls by 20 percent,the NYSE will:

The NYSE circuit breakers are recalculated:

Which one of the following is a research method used to study the effects news has on stock prices?

Over the past 5 days,the common stock of Scott Mfg.had daily returns of 0.3,-0.2,0.3,0.1,and 0.1 percent,respectively.For the same 5 days,the market had daily returns of 0.2,0.4,-0.5,0.3,and 0.1 percent,respectively.What is the cumulative abnormal return on Scott Mfg.stock for this time period?

The following are the daily returns for both the overall market and for Omega Inc.What is the cumulative abnormal return on Omega,Inc.,stock for these 5 days?

The value of the Amex Internet Index increased by about ________ percent from October 1998 to March 2000 and subsequently declined by about ________ percent by October 2002.

Which type of trader is defined as one who decides to trade securities based on publicly available information and analysis?

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 5 days?

If you believe that stock market prices follow a random walk,then:

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

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

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

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

The value of the Amex Internet Index increased by about percent from October 1998 to March 2000 and subsequently declined by about percent by October 2002.