Security at the prevailing market price

Assignment Help Finance Basics

Reference no: EM13741814

Multiple Choice Question:

Question 1: If the capital markets are efficient, then the sale or purchase of any security at the prevailing market price is:

A. Always a positive NPV transaction

B. Generally a zero NPV transaction

C. Is always a negative NPV transaction

D. None of the above

Question 2: The statement that stock prices follow a random walk implies that:

I) Successive price changes are independent of each other.

II) Successive price changes are positively related

III) Successive price changes are negatively related

IV) The autocorrelation coefficient is either +1 or -1

A. I only

B. II and III only

C. IV only

D. III only

Select one:

Question 3: Stock price cycles or patterns self-destruct as soon as investors recognize them through:

A. stock market regulation by the Securities and Exchange Commission (SEC)

B. price fixing by the specialists on New York Stock Exchange

C. trading by the investors

D. none of the above

Select one:

Question 4: Different forms of market efficiency are:

I) Weak form

II) Semi-strong form

III) Strong form

A. I only

B. I and II only

C. I and III only

D. I, II and III

Select one:

Question 5: If the efficient market hypothesis holds, investors should expect:

I) to receive a fair price for their security

II) to earn a normal rate of return on their investments

III) to be able to pick stocks that will outperform the market

A. I only

B. II only

C. III only

D. I and II only

Select one:

Question 6: Which of the following is a statement of weak form efficiency?

I) If markets are efficient in the weak form, then it is impossible to make consistently superior profits by using trading rules based on past returns

II) If the markets are efficient in the weak form, then prices will adjust immediately to public information

III) If the markets are efficient in the weak form, then prices reflect all information

A. I only

B. II only

C. II and III only

D. III only

Select one:

Question 7: If the weak form of market efficiency holds, then:

I) Technical analysis is useless

II) Stock prices reflect information contained in past prices

III) Stock price changes follow a random walk

A. I only

B. I and II only

C. I, II, and III

D. I and III only

Select one:

Question 8: Which of the following is a statement of semi-strong form efficiency?

I) If the markets are efficient in the semi-strong form then prices will adjust immediately to public information

II) If the markets are efficient in the semi-strong form then prices reflect all information

III) If the markets are efficient in the semi-strong form then prices will adjust to newly published information after a long time delay

A. I only

B. II only

C. II and III only

D. III only

Select one:

Question 9: Strong form market efficiency states that the market incorporates all information in the stock price. Strong form efficiency implies that:

I) An investor can only earn risk-free rates of return

II) An investor can always rely on technical analysis

III) An insider or corporate officer cannot outperform the market by trading on the inside information

A. I only

B. II only

C. III only

D. I, II, and III

Select one:

Question 10: If the markets are efficient, which of the following investors should have above normal return on assets over time?

A. Those who choose their stocks by throwing darts at a list of stocks found in the financial pages of a newspaper.

B. Analysts who spend considerable time evaluating the best stocks to buy.

C. Mutual fund managers who manage other people's money for a living.

D. None of the above

Select one:

Question 11: One important implication of the efficient markets hypothesis is that:

A. investors should hold a diversified portfolio and avoid active trading.

B. investors can benefit by engaging in day trading.

C. investors should trade actively help to ensure the highest overall gain in their portfolios.

D. all of the above.

Select one:

Question 12: Abnormal stock return is calculated as:

A. actual stock return less expected stock return

B. return on stock less return on market

C. return on stock for the current period less return on stock for the previous period

D. none of the above

Select one:

Question 13: Studies on behavioral finance have been developed using:

A. market evidence

B. economic evidence

C. psychological evidence

D. none of the above

Select one:

Question 14: Investors are particularly averse to the possibility of even a very small loss and need a high return to compensate for it. Such a concept is related to what theory?

A. Market efficiency theory

B. Random walk theory

C. Convergence trading

D. Prospect theory

Select one:

Question 15: For a corporation, financing decisions are harder to reverse than investment decisions.

Select one:

True

False

Reference no: EM13741814

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