Exam 23: Stock Markets and Personal Finance

Which of the following statements is TRUE? I. Stock prices provide signals on how well a company is performing. II. The stock market is a mechanism that firms use to raise money to buy capital. III. The stock market provides a mechanism for poorly managed companies to be taken over by more competent managers.

A buy-and-hold strategy only works for stocks that are very volatile.

A mutual fund manager must demonstrate high ability to beat the market over a 10-year span.

Which statement is consistent with the strategy of diversification in stock investment?

Consider the market for ABC Company's stock. What should happen to the stock for ABC Company after a merger with a highly successful supply firm is announced?

Compare a fund that charges a 0.25% annual fee with a fund that charges a 1.25% annual fee. If an investment of $5,000 earns an average return of 8% over the course of 5 years, approximately how much more will fees over those 5 years be for the higher-fee fund?

Warren Buffett will likely continue to beat the market, as he has done for the past few decades.

Which of the following statements is TRUE? I. A mutual fund pools money from many different investors and uses that money to invest in many different firms. II. Mutual funds that are run by managers who try to pick the best performing stocks usually outperform the S&P 500. III. Passive mutual funds do not try to select winning stocks; they mimic broader markets like the S&P 500.

Which is an example of passive investing?

The expected returns of different assets, adjusted for risk, should be:

A friend argues that we should select mutual funds whose managers actively trade stocks. Is this correct? Explain your answer.

Which statement is TRUE?

If the expected return on stocks is 10%, the monetary return from investing in art will be less than 10% because there is a fun return to art.

According to the rule of 70, a stock portfolio growing at a rate of 14% will double approximately every ______ years.

The basic relationship between risk and return is that to earn higher returns, one must accept more risk, which is why bonds provide higher returns than stocks.

The prices of traded assets, such as stocks and bonds, reflect all publicly available information.

Mutual funds with high fees:

A financial investor faces the lowest risk by investing in:

Which refers to the ability of an asset to generate returns, the returns of which are then reinvested in order to generate their own returns?

According to the efficient markets hypothesis,: