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Principles of Corporate Finance Study Set 3

Business

Quiz 13 :

Efficient Markets and Behavioral Finance

Quiz 13 :

Efficient Markets and Behavioral Finance

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Predictable cycles in stock price movements I.tend to persist for a long time; II.tend to self-destruct as soon as investors recognize them; III.never appear, since stock returns change randomly
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B

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Weak-form efficiency implies that past stock returns
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C

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The different forms of market efficiency are I.weak form; II.semistrong form; III.strong form
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D

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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 +1.0 or −1.0
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Informational efficiency in financial markets results in stock prices being
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Which of the following is a statement of semistrong form efficiency? I.Stock prices will adjust immediately to public information. II.Stock prices reflect all information. III.Stock prices will adjust to newly published information after a long time delay.
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Stock price cycles or patterns tend to self-destruct as soon as investors recognize them through
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Generally, a firm is able to find positive-NPV opportunities among its I.financing decisions; II.capital investment decisions; III.short-term borrowing decisions
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Financing decisions differ from investment decisions because I.financing decisions are easier to reverse; II.markets for financial assets are generally more competitive than real asset markets; III.generally, financing decisions have NPVs very close to zero
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Which of the following statements is (are)true if the strong-form efficient market hypothesis holds? I.Analysts can easily forecast stock price changes. II.Financial markets are irrational. III.Stock returns follow a particular pattern. IV.Stock prices reflect all available information.
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Strong-form market efficiency states that the market incorporates all information into stock prices. 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.professional investors cannot consistently outperform the market;
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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
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Financing decisions differ from investment decisions for which of the following reasons? I.you cannot use NPV to evaluate financing decisions; II.markets for financial assets are more active than for real assets; III.it is easier to find financing decisions with positive NPV than to find investment decisions with positive NPV
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A random walk process for a single stock consists of the toss of a fair coin at the end of each day. If the outcome is heads, the stock price increases by 1.25 percent. If the outcome is tails, the stock price decreases by 0.75 percent. What is the drift of such a process?
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A large firm received a loan guarantee from the government. Due to the guarantee, the firm can borrow $50 million for five years at 8 percent interest rate per year instead of 10 percent per year. Calculate the value of the guarantee to the firm. (Ignore taxes.)
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If the weak form of market efficiency holds, then I.technical analysis is useless; II.stock prices reflect all information contained in past prices; III.stock price returns follow a random walk
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If capital markets are efficient, then the sale or purchase of any security at the prevailing market price is generally
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A small business received a five-year $1,000,000 loan at a subsidized rate of 3 percent per year. The firm will pay 3 percent annual interest payment each year and the principal at the end of five years. If market interest rates on similar loans are 6 percent per year, what is the NPV of the loan? (Ignore taxes.)
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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 markets are efficient in the weak form, then prices will adjust immediately to public information. III.If markets are efficient in the weak form, then prices reflect all information.
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The statement that stock prices follow a random walk implies that I.the correlation coefficient between successive price changes (auto correlation)is not significantly different from zero; II.successive price changes are positively related; III.successive price changes are negatively related; IV.the autocorrelation coefficient is positive
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