Question 1

Voting rights in a corporation are held by:

Accepted Answer

A) The board of directors 
B) The preferred stockholders 
C) The corporate bondholders 
D) The common stockholders 
A) The board of directors 
B) The preferred stockholders 
C) The corporate bondholders 
D) The common stockholders

Question 2

An index number is valuable because:

Accepted Answer

A) It provides useful information to the viewer 
B) It is more stable than the data it reflects 
C) It provides a meaningful measurement scale to calculate percentage changes 
D) It does not require any calculations to compute percentage changes 
A) It provides useful information to the viewer 
B) It is more stable than the data it reflects 
C) It provides a meaningful measurement scale to calculate percentage changes 
D) It does not require any calculations to compute percentage changes

Question 3

From information presented in Chapter 8, you should be able to identify at least two reasons an investor may want to consider an index fund over a managed (mutual) fund.What are these reasons?

Accepted Answer

(1) Managed funds or mutual funds tended

Question 4

The Standard & Poor's 500 Index differs from the Dow Jones Industrial Index because:

Accepted Answer

A) It takes into account the stock prices of 500 of the largest firms, which is less than the DJIA 
B) It is a price-weighted index, where the DJIA is a value-weighted index 
C) Larger firms are less important in the S&P 500 than in the DJIA 
D) It takes into account the prices of more stocks and it uses a different weighting scheme 
A) It takes into account the stock prices of 500 of the largest firms, which is less than the DJIA 
B) It is a price-weighted index, where the DJIA is a value-weighted index 
C) Larger firms are less important in the S&P 500 than in the DJIA 
D) It takes into account the prices of more stocks and it uses a different weighting scheme

Question 5

The Dow Jones Industrial Average is:

Accepted Answer

A) An index made up of the stock prices of the 100 largest corporations in the U.S 
B) An index that measures the value of purchasing 100 shares in each of the corporations that make up the index 
C) The average price of stock in 30 of the largest companies in the U.S. 
D) The broadest measure of stock market performance 
A) An index made up of the stock prices of the 100 largest corporations in the U.S 
B) An index that measures the value of purchasing 100 shares in each of the corporations that make up the index 
C) The average price of stock in 30 of the largest companies in the U.S. 
D) The broadest measure of stock market performance

Question 6

What possibilities exist to explain the claim made by many professional money managers that they can exceed the average stock market return year after year?

Accepted Answer

As the chapter points out there are four

Question 7

Which of the following could cause a stock market bubble?

Accepted Answer

A) Changes in the real interest rate 
B) Changes in the risk premium 
C) Investor euphoria 
D) Changes in dividends 
A) Changes in the real interest rate 
B) Changes in the risk premium 
C) Investor euphoria 
D) Changes in dividends

Question 8

Many small companies currently pay no dividends to their shareholders.Based on the dividend discount model, how is it possible for these stocks to sell for a positive price?

Accepted Answer

According to the dividend discount model

Question 9

Briefly explain the different focus of valuing stocks taken by behavioralists, chartists, and those who focus on Pnext year.

Accepted Answer

The behavioralists estimate the value of

Question 10

From the perspective of the theory of efficient markets, explain why it may be difficult for professional money managers who have an exceptional year to continuously outperform the market average.

Accepted Answer

A professional money manager who has an

Question 11

Discuss the inefficiencies that can be caused by stock market bubbles, especially focusing on firms and consumers.

Accepted Answer

Stock market bubbles can lead to the ine

Question 12

Discuss whether the economy would be more or less efficient if public corporations issued fewer shares of stock.

Accepted Answer

The economy would probably be less effic

Question 13

Do the voting rights possessed by common stockholders ensure that managers and directors have the same objectives as stockholders? Explain.

Accepted Answer

Not necessarily.Stockholders are usually

Question 14

A share of stock resembles a consol in all of the following ways except that:

Accepted Answer

A) The share of stock does not have a maturity date 
B) The annual dividend the stock pays resembles the coupon on a consol 
C) The prices of both can be computed using a variation of the net present value formula 
D) They are both residual claims 
A) The share of stock does not have a maturity date 
B) The annual dividend the stock pays resembles the coupon on a consol 
C) The prices of both can be computed using a variation of the net present value formula 
D) They are both residual claims

Question 15

Why does the theory of efficient markets imply that stock price movements are unpredictable?

Accepted Answer

If people could accurately forecast pric

Question 16

What do bondholders and stockholders have in common?

Accepted Answer

A) Both are claimants 
B) Both have voting rights 
C) Both are shareholders in the company 
D) Both receive fixed payments on their securities each year 
A) Both are claimants 
B) Both have voting rights 
C) Both are shareholders in the company 
D) Both receive fixed payments on their securities each year

Question 17

According to the theory of efficient markets, mutual fund managers may be expected to earn above-average returns if they:

Accepted Answer

A) Take on less risk. 
B) Have access to illegal, private information. 
C) Participate in efficient markets. 
D) Have learned from investing in the same stocks repeatedly. 
A) Take on less risk. 
B) Have access to illegal, private information. 
C) Participate in efficient markets. 
D) Have learned from investing in the same stocks repeatedly.

Question 18

Identify the ways in which a bondholder's rights differ from those of a stockholder.In what ways do they differ when a firm is bankrupt?

Accepted Answer

Bondholders are not owners of the compan

Question 19

Compare/contrast the Nasdaq Composite Index with the Dow Jones Industrial Average.

Accepted Answer

The Nasdaq is a value-weighted index, wh

Question 20

Stock market bubbles can lead to all of the following except:

Accepted Answer

A) An efficient allocation of resources. 
B) Stock market crashes. 
C) Patterns of volatile returns from the stock market. 
D) Gaps between actual stock prices and those warranted by the fundamentals. 
A) An efficient allocation of resources. 
B) Stock market crashes. 
C) Patterns of volatile returns from the stock market. 
D) Gaps between actual stock prices and those warranted by the fundamentals.

Exam 8: Stocks, Stock Markets, and Market Efficiency

Voting rights in a corporation are held by:

An index number is valuable because:

From information presented in Chapter 8, you should be able to identify at least two reasons an investor may want to consider an index fund over a managed (mutual) fund.What are these reasons?

The Standard & Poor's 500 Index differs from the Dow Jones Industrial Index because:

The Dow Jones Industrial Average is:

What possibilities exist to explain the claim made by many professional money managers that they can exceed the average stock market return year after year?

Which of the following could cause a stock market bubble?

Many small companies currently pay no dividends to their shareholders.Based on the dividend discount model, how is it possible for these stocks to sell for a positive price?

Briefly explain the different focus of valuing stocks taken by behavioralists, chartists, and those who focus on Pnext year.

From the perspective of the theory of efficient markets, explain why it may be difficult for professional money managers who have an exceptional year to continuously outperform the market average.

Discuss the inefficiencies that can be caused by stock market bubbles, especially focusing on firms and consumers.

Discuss whether the economy would be more or less efficient if public corporations issued fewer shares of stock.

Do the voting rights possessed by common stockholders ensure that managers and directors have the same objectives as stockholders? Explain.

A share of stock resembles a consol in all of the following ways except that:

Why does the theory of efficient markets imply that stock price movements are unpredictable?

What do bondholders and stockholders have in common?

According to the theory of efficient markets, mutual fund managers may be expected to earn above-average returns if they:

Identify the ways in which a bondholder's rights differ from those of a stockholder.In what ways do they differ when a firm is bankrupt?

Compare/contrast the Nasdaq Composite Index with the Dow Jones Industrial Average.

Stock market bubbles can lead to all of the following except:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: the Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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