Exam 10: Stock Markets and Personal Finance

Diversification:

In the Alfred Hitchcock Presents episode "Mail Order Prophet," a man receives mysterious letters that accurately predict the movements of certain stocks.After being correct several times in a row,the man,upon the letter's request,sends money to the market prophet in exchange for his latest stock tip.At the end of the episode we learn the "prophet" is actually a con man who sends a letter to many people with half the letters predicting a stock will increase and the other half predicting it will decrease.How does this Hitchcock episode illustrate one particular theory of Warren Buffet's wealth?

A mutual fund pools money from many customers and invests the money in many firms.The fees charged by fund managers are:

Due to banking regulations,banks in the early part of the twentieth century were not allowed to nationalize and thus many banks had most of their investments tied up in the agricultural sector.The Dust Bowl and retaliatory tariffs caused many banks to fail,particularly during the Great Depression.Ignoring legal and cultural restrictions,what piece of advice would have served banks very well during this time?

Consider the market for ABC Company's stock.What should happen to the stock for this company if there is a rumor that the company is set to merge with another very profitable company?

Bursting stock market bubbles create labor adjustment costs.

The main objective of diversification is to maximize the return of an investment portfolio.

One important "secret" to picking stocks is to:

The Dow Jones Industrial Average:

Bursting stock market bubbles have which of the following effects? I.decreased wealth II.decreased production in those industries whose stocks have collapsed III.unemployment in those industries whose stocks have collapsed

The efficient markets hypothesis says that the ______ value of traded assets reflects all ______ information.

Which of the following stock portfolios offers the greatest diversification?

The only way someone can take advantage of information that other people don't have is to start buying or selling large numbers of shares.

The major difference between active and passive mutual funds is that active funds:

The efficient markets hypothesis is the idea that:

The number of senior citizens will double by 2020,so investing in medical care and retirement homes is likely to generate above-normal market returns.

Suppose 80 experts flip a coin to predict whether the prices of stocks will rise or fall for the year.After 4 years,how many experts will have correctly predicted the direction of the stock market?

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

To buy stocks and hold them is the best investment strategy if:

Which of the following tends to be least risky in its stock value when the economy is in a deep recession?