Exam 8: Stocks, Stock Markets, and Market Efficiency

The dividends that stockholders receive:

People differ on the method by which stock should be valued.Some people are chartists, others behavioralists.The basic difference between these groups is:

The theory of efficient markets assumes that:

A stock has a current annual dividend of $6.00 per year and it is expected to grow by 3% (0.03) a year.It is expected that two years from now the stock will sell for $90.00 a share.If the interest rate is 5% (0.05), the dividend discount model predicts the stock's current price should be:

Consider the effect of business cycles on bondholders versus stockholders.We expect that business cycles will affect:

The required stock return an investor seeks can best be represented by which of the following?

The Dow Jones Industrial Average is:

Suppose that the current dividend for a stock is Dtoday, the expected dividend growth rate is r, and the interest rate is i.If we ignore risk, which of the following represents the dividend-discount model formula for the fundamental price of a stock?

As the corporation uses more debt financing, which of the following holds true for the stockholders?

Index funds are often preferred to mutual funds because:

The stocks that make up the Dow Jones Industrial Average:

If each company that made up the Dow Jones Industrial Average increased the number of their shares outstanding by 10%, but the share prices did not change, the value of the index would:

If the Dow Jones Industrial Average is at 10,205 and it is up 4% from the previous day, what was the index at the close of the market the previous day?

A share of common stock represents:

You are a top Treasury official for a developing country who has been asked for advice on how to best open the nation's stock market to foreign investment.Previously, the government did not permit foreigners to purchase domestic stock.Now, the government has a plan to create two markets: one for domestic residents and one for foreign investment.What are the potential drawbacks of this system, compared to allowing both domestic and foreign investors to trade in the same market? What are the larger implications for economic efficiency? How might the government be able to address these issues?

The notion that stock prices reflect all current available information:

All other things equal, a decrease in the equity risk premium leads to a(n):

The impact from rapid dividend growth on a stock's current price will be:

Consider a game that involves the tossing of a fair coin.The winner is the individual who calls the outcome correctly, the loser obviously called the wrong outcome.The theory of efficient markets would say:

This is a two-part question: We have a firm that needs $1000 to obtain a new machine for its business.It can either issue stock or bonds, or some combination of both.If it issues bonds it will have to pay $8.00 in interest for every $100 borrowed.Finally, assume the company will earn $150 in good years and $75 in bad years, with equal probability.The first part of the question is to (a) determine the payment to the equity holders under the following three scenarios: (i) the first is the firm uses 0% debt financing; (ii) the second is the firm uses 50% debt financing, and (iii) the third finds the firm using 80% debt financing. The second part of the question is to (b) determine the expected equity return (%) under each scenario.