Question 1

If the market is semistrong-form efficient,then which one of the following statements is true?

Accepted Answer

A)  Neither technical nor fundamental analysis leads to abnormal profits. 
B)  Technical analysts have the ability to earn excess profits but fundamental analysts cannot. 
C)  Fundamental analysts can earn excess profits but technical analysts cannot. 
D)  Both technical and fundamental analysts earn excess profits based on their research. 
E)  No answer can be determined as the form of market efficiency is unrelated to abnormal, or excess returns.

Question 2

Which one of the following statements concerning the stock market is correct?

Accepted Answer

A)  Leverage was one of the contributing factors of the Crash of 1929. 
B)  "Black Monday" refers to October 29, 1929. 
C)  Program trading is cited as the sole cause of the Crash of 1987. 
D)  Generally speaking, market crashes tend to last longer than market bubbles. 
E)  It took the market 10 years to recover from the Crash of 1987.

Question 3

Which of the following factors contributed to the Crash of 1987?
I.irrational investors
II.program trading
III.panic selling
IV.price uncertainty

Accepted Answer

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

Question 4

Security A and Security B have similar risks.However,Security A has a higher rate of return than Security B.The return on Security A minus the return on Security B is referred to as which one of the following?

Accepted Answer

A)  market return 
B)  abnormal return 
C)  deviated return 
D)  excess return 
E)  real return

Question 5

By the end of 2002,the AMEX Internet Index was at a level approximately equal to _____ percent of the index high.

Accepted Answer

A)  75 
B)  50 
C)  25 
D)  17 
E)  9

Question 6

Which one of the following best describes the type(s)of information included in a strong-form efficient market?

Accepted Answer

A)  historical 
B)  historical and public 
C)  private and public 
D)  current and public 
E)  historical and private

Question 7

Which one of the following would best reveal how stock prices react when competitive firms merge?

Accepted Answer

A)  financial analysis 
B)  field testing 
C)  risk analysis 
D)  event study 
E)  market survey

Question 8

In an efficient market,stocks with similar risks will:

Accepted Answer

A)  have the same market price. 
B)  pay similar dividends. 
C)  yield the market rate of return. 
D)  produce abnormal returns. 
E)  have similar rates of return.

Question 9

Which one of the following states that investors cannot consistently earn positive excess returns?

Accepted Answer

A)  market return hypothesis 
B)  current market hypothesis 
C)  efficient market hypothesis 
D)  risk-return theory 
E)  excess theory

Question 10

The day-of-the-week effect is defined as the tendency for which day of the week to have a negative average rate of return?

Accepted Answer

A)  Monday 
B)  Tuesday 
C)  Wednesday 
D)  Thursday 
E)  Friday

Question 11

Which one of the following terms is used to identify the NYSE rules which slow or stop trading when the DJIA declines by more than a specified amount during a trading session?

Accepted Answer

A)  order flows 
B)  market timers 
C)  crash helmets 
D)  circuit breakers 
E)  trade barriers

Question 12

Two weeks ago Acme Electronics announced that it had developed a new chip design which was being considered by major companies for use in future smart phone development.At the close of trading the day before the announcement,Acme common stock closed at $20.On the day following the announcement,Acme closed at $21.Two days after the announcement the stock closed at $22.50.Four days after the announcement the stock traded at $23.Last week,Acme stock traded at $26,a level it has maintained since then.This is an example of a(n):

Accepted Answer

A)  over-reaction and correction. 
B)  underpricing. 
C)  delayed reaction. 
D)  pre-activity action. 
E)  efficient market reaction.

Question 13

From the end of 1989 to the spring of 2003,the Nikkei Index declined in value approximately ________ percent.

Accepted Answer

A)  50 
B)  60 
C)  70 
D)  80 
E)  90

Question 14

Which one of the following occurred following the Crash of 1987?

Accepted Answer

A)  Program trading was barred. 
B)  All market orders were changed to electronic orders. 
C)  Trading is now halted for the day anytime the market declines by 10 percent or more. 
D)  Trading now stops for one hour anytime the market declines by 10 percent. 
E)  Congress decided not to pass any anti-takeover legislation.

Question 15

Which of the following occurred during the Crash of 1987?
I.market prices were kept up-to-date which increased investors' anxiety
II.the market declined another 5 percent within the 2 days following the crash
III.trading volume exceeded the exchange's capacities
IV.NASDAQ went off-line

Accepted Answer

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

Question 16

If the S&P 500 falls by 7 percent,the NYSE will:

Accepted Answer

A)  halt trading for thirty minutes. 
B)  halt trading for two hours if the decline occurs before 3:25 p.m. 
C)  halt trading for one hour. 
D)  halt trading for one hour if the decline occurs after noon. 
E)  halt trading for 15 minutes if the decline occurs before 3:25 p.m.

Question 17

Which one of the following is most apt to be considered insider trading?

Accepted Answer

A)  Amy overhears Mary say she is being promoted to accounts payables manager and then she purchases shares in Mary's employer. 
B)  Jennifer compiles the financial statements and knows that net income for the latest quarter is significantly below analyst's forecasts but continues to hold shares of her employer's stock. 
C)  Kathy is an outside auditor and has found what she believes are significant accounting irregularities in a company's financial reports but owns no shares in the firm. 
D)  Lee buys stock in Winter's Wear after he overhears a conversation between the firm's president and vice-president concerning a proposed acquisition. 
E)  Jeff buys shares of stock in his employer's firm through the company retirement plan on a regular monthly basis.

Question 18

Which of the following are offered as factors contributing to the Crash of October 1987?
I.bubble bursting
II.market volatility
III.negative economic signals
IV.activities in Congress

Accepted Answer

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

Question 19

Which one of the following relates to the risk-adjustment problem encountered when testing market efficiency?

Accepted Answer

A)  ascertaining how historical prices relate to current stock prices 
B)  determining whether a market reaction was appropriate or overstated 
C)  correctly determining the correct risk-adjustment procedure 
D)  determining what undocumented information existed on any particular trading day 
E)  identifying patterns that occur over time in the pricing of a particular security

Question 20

The primary purpose of the NYSE circuit breakers is to:

Accepted Answer

A)  halt short selling. 
B)  encourage program trading. 
C)  limit trading by specialists. 
D)  minimize institutional trading. 
E)  slow a market decline.

Exam 7: Stock Price Behavior and Market Efficiency