Try out our new practice tests completely free!

# Principles of Corporate Finance Study Set 3

Bookmark

## Quiz 13 : Efficient Markets and Behavioral Finance

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
Free
Multiple Choice

B

Weak-form efficiency implies that past stock returns
Free
Multiple Choice

C

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

D

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
Multiple Choice
Informational efficiency in financial markets results in stock prices being
Multiple Choice
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.
Multiple Choice
Stock price cycles or patterns tend to self-destruct as soon as investors recognize them through
Multiple Choice
Generally, a firm is able to find positive-NPV opportunities among its I.financing decisions; II.capital investment decisions; III.short-term borrowing decisions
Multiple Choice
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
Multiple Choice
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.
Multiple Choice
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;
Multiple Choice
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
Multiple Choice
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
Multiple Choice
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.) Multiple Choice Answer: 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 Multiple Choice Answer: If capital markets are efficient, then the sale or purchase of any security at the prevailing market price is generally Multiple Choice Answer: 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.)