Question 1

According to Brown,Finn and Hancock (1977),the highest positive abnormal returns are associated with the simultaneous announcement of:

Accepted Answer

A) profit increases and dividends per share decreases. 
B) profit and dividends per share decreases. 
C) profit and dividends per share increases. 
D) profit decreases and dividends per share increases. 
A) profit increases and dividends per share decreases. 
B) profit and dividends per share decreases. 
C) profit and dividends per share increases. 
D) profit decreases and dividends per share increases. C

Question 2

ABC Ltd made an unexpected announcement concerning a major new contract on Monday,but ABC shares were not traded until the following Wednesday and Friday.The closing price on Wednesday was unchanged from Monday but different to that on Friday.Trading of ABC shares appears to be an example of:

Accepted Answer

A) market efficiency. 
B) an announcement imparting no 'new' news. 
C) market inefficiency. 
D) infrequent trading,not market inefficiency. 
A) market efficiency. 
B) an announcement imparting no 'new' news. 
C) market inefficiency. 
D) infrequent trading,not market inefficiency. C

Question 3

A weak-form efficient market can best be described as a market in which:

Accepted Answer

A) trading strategies based upon past share prices cannot earn abnormal profits. 
B) all publicly available information is fully reflected in share prices. 
C) share prices follow predictable trends. 
D) trading strategies based on past information can earn abnormal profits. 
A) trading strategies based upon past share prices cannot earn abnormal profits. 
B) all publicly available information is fully reflected in share prices. 
C) share prices follow predictable trends. 
D) trading strategies based on past information can earn abnormal profits. A

Question 4

The 'representativeness heuristic' is a term to describe irrational behaviour that suggests that:

Accepted Answer

A) in forming their beliefs,individuals may be too slow in identifying a firm as an excellent or a terrible investment. 
B) in forming their beliefs,individuals may be more enthusiastic about companies with better slogans. 
C) in forming their beliefs,individuals may be less enthusiastic about companies with better slogans as it implies that the company is trying to detract investors from focusing on its financial performance. 
D) None of the given options is correct. 
A) in forming their beliefs,individuals may be too slow in identifying a firm as an excellent or a terrible investment. 
B) in forming their beliefs,individuals may be more enthusiastic about companies with better slogans. 
C) in forming their beliefs,individuals may be less enthusiastic about companies with better slogans as it implies that the company is trying to detract investors from focusing on its financial performance. 
D) None of the given options is correct.

Question 5

If the stock market is efficient then:

Accepted Answer

A) investors should consider factors,such as risk preferences,when selecting a portfolio of securities. 
B) investors should select their investments randomly since all securities are correctly priced anyway. 
C) a portfolio of randomly selected securities will necessarily eliminate all unsystematic risk. 
D) portfolio selection becomes easy since all information is impounded in share prices. 
A) investors should consider factors,such as risk preferences,when selecting a portfolio of securities. 
B) investors should select their investments randomly since all securities are correctly priced anyway. 
C) a portfolio of randomly selected securities will necessarily eliminate all unsystematic risk. 
D) portfolio selection becomes easy since all information is impounded in share prices.

Question 6

An implication of the EMH for financial managers is that:

Accepted Answer

A) investing in a project that increases the company's true value will be reflected in the share price upon release of the information. 
B) the current share price is not a good indicator of the company's true value. 
C) the company's share price may overstate the true value of the company. 
D) All of the given answers. 
A) investing in a project that increases the company's true value will be reflected in the share price upon release of the information. 
B) the current share price is not a good indicator of the company's true value. 
C) the company's share price may overstate the true value of the company. 
D) All of the given answers.

Question 7

If the stock market is efficient with respect to the incorporation of publicly available information,then:

Accepted Answer

A) charting a company's share prices is likely to be profitable. 
B) technical analysis is likely to be profitable. 
C) fundamental analysis is unlikely to be profitable. 
D) insider information is unlikely to lead to abnormal profits. 
A) charting a company's share prices is likely to be profitable. 
B) technical analysis is likely to be profitable. 
C) fundamental analysis is unlikely to be profitable. 
D) insider information is unlikely to lead to abnormal profits.

Question 8

One weakness of the event study methodology is the difficulty in determining the instance in which information was released to the market.

Accepted Answer

A) True 
 B)False

Question 9

A period in which prices rise strongly,departing from their true value,frequently followed by a sudden decrease in prices is known as a/an:

Accepted Answer

A) post-event drift. 
B) bubble. 
C) overreaction anomaly. 
D) buy and hold period. 
A) post-event drift. 
B) bubble. 
C) overreaction anomaly. 
D) buy and hold period.

Question 10

Rozeff and Kinney (1976)showed that the average return in January was more than:

Accepted Answer

A) six times larger than the average returns in the other 11 months. 
B) four times larger than the average returns in the other 11 months. 
C) five times larger than the average returns in the other 11 months. 
D) three times larger than the average returns in the other 11 months. 
A) six times larger than the average returns in the other 11 months. 
B) four times larger than the average returns in the other 11 months. 
C) five times larger than the average returns in the other 11 months. 
D) three times larger than the average returns in the other 11 months.

Question 11

In an efficient market,there should be an instantaneous and ____________ share price reaction to information.

Accepted Answer

The answer of In an efficient market,there should be an...

Question 12

In an efficient market,it is not possible (except by chance)to employ trading strategies that generate excess profits over the long-term.

Accepted Answer

A) True 
 B)False

Question 13

The dividend yield effect may be explained by the fact that:

Accepted Answer

A) if dividends are taxed more heavily than capital gains,investors will prefer a dollar of before-tax capital gains to a dollar of before-tax dividends. 
B) if dividends are taxed more heavily than capital gains,investors will prefer a dollar of before-tax dividends to a dollar of before-tax capital gains. 
C) investors will require high before-tax returns on shares that pay low dividends in order to compensate them for the higher tax burden that the capital gains will impose. 
D) none of the given options. 
A) if dividends are taxed more heavily than capital gains,investors will prefer a dollar of before-tax capital gains to a dollar of before-tax dividends. 
B) if dividends are taxed more heavily than capital gains,investors will prefer a dollar of before-tax dividends to a dollar of before-tax capital gains. 
C) investors will require high before-tax returns on shares that pay low dividends in order to compensate them for the higher tax burden that the capital gains will impose. 
D) none of the given options.

Question 14

Which of the following statements is the most consistent with evidence provided on the EMH?

Accepted Answer

A) Technical analysis is a worthwhile trading strategy for most investors. 
B) Most investors have access to private information. 
C) Most investors should adopt a passive buy-and-hold strategy,most of the time. 
D) Fundamental analysis is a worthwhile trading strategy for most investors. 
A) Technical analysis is a worthwhile trading strategy for most investors. 
B) Most investors have access to private information. 
C) Most investors should adopt a passive buy-and-hold strategy,most of the time. 
D) Fundamental analysis is a worthwhile trading strategy for most investors.

Question 15

Semi-strong-form efficiency can best be described as:

Accepted Answer

A) the ability of investors to earn abnormal profits from the over-reaction of share prices to news. 
B) a market in which trading strategies based on past prices cannot earn abnormal profits. 
C) a market in which trading strategies based on all publicly available information cannot earn abnormal profits. 
D) all information,public and private,is fully impounded in share prices. 
A) the ability of investors to earn abnormal profits from the over-reaction of share prices to news. 
B) a market in which trading strategies based on past prices cannot earn abnormal profits. 
C) a market in which trading strategies based on all publicly available information cannot earn abnormal profits. 
D) all information,public and private,is fully impounded in share prices.

Question 16

Gold Ltd made an unexpected announcement at 11am that a new gold mine had been discovered.The share price established in the last trade before the announcement was 37 cents.The first trade after the announcement was also at 37 cents but the following trade took place at 52 cents,which became the new established price.With regards to the first trade after the announcement:

Accepted Answer

A) the buyer has made an abnormal profit. 
B) the seller has made an abnormal profit. 
C) the buyer has made a normal loss. 
D) the seller has made a normal profit. 
A) the buyer has made an abnormal profit. 
B) the seller has made an abnormal profit. 
C) the buyer has made a normal loss. 
D) the seller has made a normal profit.

Question 17

Which of the following statements about market efficiency is true?

Accepted Answer

A) A market can be semi-strong-form and strong-form efficient but not weak-form efficient. 
B) A market can be semi-strong-form efficient but not weak-form efficient. 
C) A market can be semi-strong-form,weak-form or strong-form efficient but not all simultaneously. 
D) A market must be weak-form efficient if it is semi-strong-form efficient. 
A) A market can be semi-strong-form and strong-form efficient but not weak-form efficient. 
B) A market can be semi-strong-form efficient but not weak-form efficient. 
C) A market can be semi-strong-form,weak-form or strong-form efficient but not all simultaneously. 
D) A market must be weak-form efficient if it is semi-strong-form efficient.

Question 18

In a market that is strong form efficient,___________ information cannot be acted upon to generate abnormal returns.

Accepted Answer

The answer of In a market that is strong form...

Question 19

A number of studies have found that better (or poorly)performing shares continue to perform well (poorly)in the medium term.This effect is termed the:

Accepted Answer

A) book-to-market effect. 
B) price/earnings effect. 
C) momentum effect. 
D) None of the given answers. 
A) book-to-market effect. 
B) price/earnings effect. 
C) momentum effect. 
D) None of the given answers.

Question 20

If the market processes new information efficiently,the reaction of market prices to new information will be:

Accepted Answer

A) unbiased. 
B) instantaneous. 
C) instantaneous and unbiased. 
D) fair. 
A) unbiased. 
B) instantaneous. 
C) instantaneous and unbiased. 
D) fair.

Exam 16: Capital Market Efficiency

According to Brown,Finn and Hancock (1977),the highest positive abnormal returns are associated with the simultaneous announcement of:

ABC Ltd made an unexpected announcement concerning a major new contract on Monday,but ABC shares were not traded until the following Wednesday and Friday.The closing price on Wednesday was unchanged from Monday but different to that on Friday.Trading of ABC shares appears to be an example of:

A weak-form efficient market can best be described as a market in which:

The 'representativeness heuristic' is a term to describe irrational behaviour that suggests that:

If the stock market is efficient then:

An implication of the EMH for financial managers is that:

If the stock market is efficient with respect to the incorporation of publicly available information,then:

One weakness of the event study methodology is the difficulty in determining the instance in which information was released to the market.

A period in which prices rise strongly,departing from their true value,frequently followed by a sudden decrease in prices is known as a/an:

Rozeff and Kinney (1976)showed that the average return in January was more than:

In an efficient market,there should be an instantaneous and ____________ share price reaction to information.

In an efficient market,it is not possible (except by chance)to employ trading strategies that generate excess profits over the long-term.

The dividend yield effect may be explained by the fact that:

Which of the following statements is the most consistent with evidence provided on the EMH?

Semi-strong-form efficiency can best be described as:

Which of the following statements about market efficiency is true?

In a market that is strong form efficient,___________ information cannot be acted upon to generate abnormal returns.

A number of studies have found that better (or poorly)performing shares continue to perform well (poorly)in the medium term.This effect is termed the:

If the market processes new information efficiently,the reaction of market prices to new information will be:

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

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