Question 1

Proponents of the EMH typically advocate __________.

Accepted Answer

A)  a conservative investment strategy 
B)  a liberal investment strategy 
C)  a passive investment strategy 
D)  an aggressive investment strategy 
A)  a conservative investment strategy 
B)  a liberal investment strategy 
C)  a passive investment strategy 
D)  an aggressive investment strategy

Question 2

A mutual fund which attempts to hold quantities of shares in proportion to their representation in the market is called a __________ fund.

Accepted Answer

A)  stock 
B)  index 
C)  hedge 
D)  money market 
A)  stock 
B)  index 
C)  hedge 
D)  money market

Question 3

Proponents of the EMH think technical analysts __________.

Accepted Answer

A)  should focus on relative strength 
B)  should focus on resistance levels 
C)  should focus on support levels 
D)  are wasting their time 
A)  should focus on relative strength 
B)  should focus on resistance levels 
C)  should focus on support levels 
D)  are wasting their time

Question 4

If you believe in the __________ form of the EMH,you believe that stock prices reflect all relevant information including information that is available only to insiders.

Accepted Answer

A)  semi-strong 
B)  strong 
C)  weak 
D)  perfect 
A)  semi-strong 
B)  strong 
C)  weak 
D)  perfect

Question 5

The broadest information set is included in the

Accepted Answer

A)  weak form efficiency argument 
B)  semi-strong form efficiency argument 
C)  strong form efficiency argument 
D)  technical analysis trading method 
A)  weak form efficiency argument 
B)  semi-strong form efficiency argument 
C)  strong form efficiency argument 
D)  technical analysis trading method

Question 6

Even if the markets are efficient,professional portfolio management is still important because it provides investors with _________.
I.low cost diversification
II.provides a portfolio with a specified risk level
III.provides better risk adjusted returns than an index

Accepted Answer

A)  I only 
B)  I and II only 
C)  II and III only 
D)  I, II and III 
A)  I only 
B)  I and II only 
C)  II and III only 
D)  I, II and III

Question 7

The term random walk is used in investments to refer to ______________.

Accepted Answer

A)  stock price changes that are random but predictable 
B)  stock prices that respond slowly to both old and new information 
C)  stock price changes that are random and unpredictable 
D)  stock prices changes that follow the pattern of past price changes 
A)  stock price changes that are random but predictable 
B)  stock prices that respond slowly to both old and new information 
C)  stock price changes that are random and unpredictable 
D)  stock prices changes that follow the pattern of past price changes

Question 8

The small firm in January effect is strongest ________.

Accepted Answer

A)  early in the month 
B)  in the middle of the month 
C)  late in the month 
D)  in even numbered years 
A)  early in the month 
B)  in the middle of the month 
C)  late in the month 
D)  in even numbered years

Question 9

Joe bought a stock at $57 per share.The price promptly fell to $55.Joe held on to the stock until it again reached $57 and then he sold once he had eliminated his loss.If other investors do the same to establish a trading pattern this would contradict _______.

Accepted Answer

A)  the strong-form EMH 
B)  the weak-form EMH 
C)  technical analysis 
D)  the semistrong-form EMH 
A)  the strong-form EMH 
B)  the weak-form EMH 
C)  technical analysis 
D)  the semistrong-form EMH

Question 10

Which Fidelity Magellan portfolio manager is often referenced as an exception to the general conclusion of efficient markets?

Accepted Answer

A)  Jeff Vinik 
B)  Peter Lynch 
C)  Robert Stansky 
D)  William Hayes 
A)  Jeff Vinik 
B)  Peter Lynch 
C)  Robert Stansky 
D)  William Hayes

Question 11

Most of the stock price response to a corporate earnings or dividend announcement occurs within ________________.

Accepted Answer

A)  about 30 seconds 
B)  about 10 minutes 
C)  6 months 
D)  2 years 
A)  about 30 seconds 
B)  about 10 minutes 
C)  6 months 
D)  2 years

Question 12

Evidence supporting semi-strong form market efficiency suggests that investors should _________________________.

Accepted Answer

A)  rely on technical analysis to select securities 
B)  rely on fundamental analysis to select securities 
C)  use a passive trading strategy such as purchasing an index fund or an ETF 
D)  select securities by throwing darts at the financial pages of the newspaper 
A)  rely on technical analysis to select securities 
B)  rely on fundamental analysis to select securities 
C)  use a passive trading strategy such as purchasing an index fund or an ETF 
D)  select securities by throwing darts at the financial pages of the newspaper

Question 13

An implication of the efficient market hypothesis is that __________.

Accepted Answer

A)  high beta stocks are consistently overpriced 
B)  low beta stocks are consistently overpriced 
C)  nonzero alphas will quickly disappear 
D)  growth stocks are better buys than value stocks 
A)  high beta stocks are consistently overpriced 
B)  low beta stocks are consistently overpriced 
C)  nonzero alphas will quickly disappear 
D)  growth stocks are better buys than value stocks

Question 14

Which of the following is not a method employed by fundamental analysts?

Accepted Answer

A)  Analyzing the Fed's next interest rate move 
B)  Relative strength analysis 
C)  Earnings forecasting 
D)  Estimating the economic growth rate 
A)  Analyzing the Fed's next interest rate move 
B)  Relative strength analysis 
C)  Earnings forecasting 
D)  Estimating the economic growth rate

Question 15

When testing mutual fund performance over time one must be careful of ___________,which means that a certain percentage of poorer performing funds fail over time which makes the performance of remaining funds seem more consistent over time.

Accepted Answer

A)  survivorship bias 
B)  lucky event bias 
C)  magnitude bias 
D)  mean reversion bias 
A)  survivorship bias 
B)  lucky event bias 
C)  magnitude bias 
D)  mean reversion bias

Question 16

Value stocks usually exhibit ___ price-to-book ratios and ___ price-to-earnings ratios.

Accepted Answer

A)  low, low 
B)  low, high 
C)  high, low 
D)  high, high 
A)  low, low 
B)  low, high 
C)  high, low 
D)  high, high

Question 17

Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis?

Accepted Answer

A)  The average rate of return is significantly greater than zero. 
B)  The correlation between the market return one week and the return the following week is zero. 
C)  You could have consistently made superior returns by buying stock after a 10% rise in price and selling after a 10% fall. 
D)  You could have consistently made superior returns by forecasting future earnings performance with your new Crystal Ball forecast methodology. 
A)  The average rate of return is significantly greater than zero. 
B)  The correlation between the market return one week and the return the following week is zero. 
C)  You could have consistently made superior returns by buying stock after a 10% rise in price and selling after a 10% fall. 
D)  You could have consistently made superior returns by forecasting future earnings performance with your new Crystal Ball forecast methodology.

Question 18

Tests of mutual fund performance indicate that funds with ______________ tend to have poorer performance.

Accepted Answer

A)  more funds in the family 
B)  higher expense and turnover ratios 
C)  lower management fees 
D)  larger asset size 
A)  more funds in the family 
B)  higher expense and turnover ratios 
C)  lower management fees 
D)  larger asset size

Question 19

The strong form of the EMH states that ________ must be reflected in the current stock price.

Accepted Answer

A)  all security price and volume data 
B)  all publicly available information 
C)  all information including inside information 
D)  all costless information 
A)  all security price and volume data 
B)  all publicly available information 
C)  all information including inside information 
D)  all costless information

Question 20

__________ is the return on a stock beyond what would be predicted from market movements alone.

Accepted Answer

A)  A normal return 
B)  A subliminal return 
C)  An abnormal return 
D)  An excess return 
A)  A normal return 
B)  A subliminal return 
C)  An abnormal return 
D)  An excess return

Exam 8: The Efficient Market Hypothesis

Proponents of the EMH typically advocate __________.

A mutual fund which attempts to hold quantities of shares in proportion to their representation in the market is called a __________ fund.

Proponents of the EMH think technical analysts __________.

If you believe in the __________ form of the EMH,you believe that stock prices reflect all relevant information including information that is available only to insiders.

The broadest information set is included in the

Even if the markets are efficient,professional portfolio management is still important because it provides investors with _________. I.low cost diversification II.provides a portfolio with a specified risk level III.provides better risk adjusted returns than an index

The term random walk is used in investments to refer to ______________.

The small firm in January effect is strongest ________.

Joe bought a stock at $57 per share.The price promptly fell to $55.Joe held on to the stock until it again reached $57 and then he sold once he had eliminated his loss.If other investors do the same to establish a trading pattern this would contradict _______.

Which Fidelity Magellan portfolio manager is often referenced as an exception to the general conclusion of efficient markets?

Most of the stock price response to a corporate earnings or dividend announcement occurs within ________________.

Evidence supporting semi-strong form market efficiency suggests that investors should _________________________.

An implication of the efficient market hypothesis is that __________.

Which of the following is not a method employed by fundamental analysts?

When testing mutual fund performance over time one must be careful of ___________,which means that a certain percentage of poorer performing funds fail over time which makes the performance of remaining funds seem more consistent over time.

Value stocks usually exhibit ___ price-to-book ratios and ___ price-to-earnings ratios.

Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis?

Tests of mutual fund performance indicate that funds with ______________ tend to have poorer performance.

The strong form of the EMH states that ________ must be reflected in the current stock price.

__________ is the return on a stock beyond what would be predicted from market movements alone.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

Value stocks usually exhibit _ price-to-book ratios and _ price-to-earnings ratios.