Exam 8: Stocks, Stock Markets, and Market Efficiency

You make a $1,000 investment in the stock of ABC Inc.Over the next year the investment decreases by 60%.What percentage increase do you need in the following year on your holding to be back to $1,000?

If a company reports that it is going to have a difficult time meeting its debt obligations, you would expect the Ptoday:

The Nasdaq Composite Index:

A stock currently does not pay an annual dividend.An investor expects this policy to remain in force.She believes, however, the stock of this company will sell for $110.00 per share four years from now.If she has an interest (discount) rate of 7% (0.07), the dividend discount model predicts the current price of this stock should be:

You hear someone claim that stocks are less risky than bonds.What possible evidence could this person offer for such a claim?

When stock prices reflect fundamental values:

When studying world stock indexes, we observe that:

The theory of efficient markets:

Explain why the willingness to purchase stocks is influenced heavily by shareholders' legal rights.

The basic dividend-discount model is a bit of an oversimplification for valuing stocks because:

What price would an individual be willing to pay today for a stock that is expected to sell for $100 two years from now and which pays an annual dividend that is $6.00? Assume the individual has a discount rate of 8% (0.08).

The stock market bubble of the late 1990's and early 2000:

The most broadly based stock index in use is:

Discuss the effects on the current price of a stock from each of the following: a) An increase in the growth rate of the dividend; b) A decrease in the risk-free interest rate; c) An increase in the equity-risk premium; and finally d) A decrease in the annual dividend.

A stock has an annual dividend of $10.00 and it is expected not to grow.It is believed the stock will sell for $100 one year from now, and an investor has a discount (interest) rate of 6% (0.06).The dividend discount model predicts the stock's current price should be:

Which of the following stock price indexes is a price-weighted index?

In the first calendar quarter a company reports that it expects profits to rise in the fourth quarter.The theory of efficient markets says we should expect the price of the company's stock to:

A company currently pays a dividend of $4.00 per share.It expects the growth rate of the dividend to be 3% (0.03) annually.If the interest rate is 6% (0.06) what does the dividend-discount model predict the current price of the stock should be?

What price would an individual be willing to pay today for a stock he/she expects can be sold for $200 one year from now, if the individual has a discount rate of 6% (.06) and the stock pays an annual dividend of $7.50?

You start with a portfolio valued at $500.Over the next twelve months it loses 40%; the following year it has a gain of 30%.At the end of two years your portfolio is worth: