Question 1

According to the efficient markets hypothesis,the difference between today's price for a share of stock and tomorrow's price is

Accepted Answer

According to the efficient markets hypothesis, all currently available information is already reflected in a stock's current price, meaning that the future price changes are unpredictable. Therefore, the difference between today's price and tomorrow's price (future price) is unforecastable. This is why option C is the correct answer.

Question 2

According to the efficient markets hypothesis,who is most likely to benefit from frequently moving funds from one asset to another?

Accepted Answer

According to the efficient markets hypothesis, frequent trading does not result in higher returns since market prices already reflect all available information. Therefore, the only ones who will benefit from frequent trading are the brokers who earn commissions on each trade.

Question 3

According to the efficient markets hypothesis

Accepted Answer

The efficient markets hypothesis posits that asset prices fully reflect all available information, meaning the equilibrium price of an asset should equal the best forecast of its fundamental value based on that information. Choices B, C, and D misrepresent aspects of the hypothesis, particularly in how prices reflect information and the distinction between actual, expected, and information-based pricing.

Question 4

According to the efficient markets hypothesis,prices of securities

Accepted Answer

The answer of According to the efficient markets hypothesis,prices of...

Question 5

In comparing actively managed mutual funds with those funds that simply buy and hold a large market portfolio (index funds),we would expect that

Accepted Answer

Research has consistently shown that index funds outperform actively managed funds on average over the long term due to lower expenses and less turnover. Actively managed funds typically have higher fees and expenses, which can significantly reduce returns. In addition, index funds provide broad diversification, which can lower risk and provide more consistent returns. While there may be some instances where actively managed funds outperform index funds, these are generally exceptions rather than the rule. Therefore, it's best to choose index funds for long-term investing.

Question 6

Technical analysis is a version of

Accepted Answer

Technical analysis is a form of investment valuation that analyses past prices to predict future price action. It is based on the concept of adaptive expectations, where future prices are predicted based on patterns and trends from past price movements.

Question 7

One implication of the efficient markets hypothesis is that investors should

Accepted Answer

The efficient markets hypothesis suggests that all available information is already reflected in market prices, making it difficult or impossible to consistently outperform the market. Therefore, investors should hold a diversified portfolio of assets to minimize risk and maximize potential returns, rather than concentrating their investments in just a few well-chosen assets. This means that both stocks and bonds should be included in the portfolio, depending on the investor's risk tolerance and investment goals.

Question 8

The long-run average annual return on investments in the stock market is ________ than the annual returns on investments in Treasury bills and ________ than the annual returns on investments in bank CDs.

Accepted Answer

Historically, investments in the stock market have offered higher long-run average annual returns compared to both Treasury bills and bank CDs, reflecting the higher risk associated with stock market investments.

Question 9

Under the efficient markets hypothesis,what would be the price per share of a company whose current dividend is $10.00 and whose dividends are expected to grow by 3% per year (assume the risk-adjusted interest rate is 10%)?

Accepted Answer

The answer of Under the efficient markets hypothesis,what would be...

Question 10

According to the efficient markets hypothesis

Accepted Answer

According to the efficient markets hypothesis, stock prices already reflect all available information about a company, including both long-term and short-term prospects. Therefore, price fluctuations in common stock will predominantly be in response to news about changes in the company's long-term prospects, rather than short-term news or fads. While there may still be some minor fluctuations due to short-term news, overall the hypothesis suggests that stock prices will be relatively stable and reflect the underlying value of the company.

Question 11

Suppose Exxon-Mobil announces that its profits in the third quarter of 2016 were $40 billion.This will cause the price of Exxon-Mobil stock to

Accepted Answer

The price of Exxon-Mobil stock after the announcement of its profits would depend on the expectations of market participants before the announcement. If the profits were higher than expected, the price might rise. If the profits were lower than expected, the price might fall. If the profits were as expected, the price might remain unchanged.

Question 12

An investor will generally find that hiring an investment firm to actively manage his or her portfolio will

Accepted Answer

Actively managed portfolios often have higher fees and may not consistently outperform index funds, leading to similar returns but higher costs.

Question 13

An implication of the efficient markets hypothesis is that

Accepted Answer

The efficient markets hypothesis suggests that any new information that becomes available about a security is quickly reflected in its price, making it difficult for investors to consistently earn above-normal profits. This implies that any attempt to make above-normal profits through trading is futile and that such profits will be eliminated in the trading process. Therefore, choice C is the best option. The other options suggest that it is possible to consistently earn above-normal profits, which is contrary to the efficient markets hypothesis.

Question 14

Under the efficient markets hypothesis,for news about a company's prospects to have a large impact on the price of the company's stock,the news must

Accepted Answer

According to the efficient markets hypothesis, all publicly available information about a company, including news about its prospects, is already reflected in the stock price. Therefore, for news to have a large impact on the stock price, it must be new and unexpected, and must change investors' expectations of the company's future profitability in the long term. Short-term changes in profitability are likely to be already factored into the stock price, so they are unlikely to have a large impact on the price. Other choices (C and D) are not relevant to the efficient markets hypothesis.

Question 15

The efficient markets hypothesis

Accepted Answer

The efficient markets hypothesis assumes that market participants have rational expectations and that all available information is reflected in asset prices. This implies that it is difficult to consistently outperform the market by using public information. Choice A is incorrect because the efficient markets hypothesis does not assume adaptive expectations, which means that market participants do not change their expectations based on changes in prices. Choice C is incorrect because the efficient markets hypothesis applies to all markets, including the bond market. Choice D is incorrect because the efficient markets hypothesis implies that the stock market is both efficient and rational.

Question 16

"Tips" published in leading commercial or financial publications are unlikely to lead to profitable trades because

Accepted Answer

Tips published in leading commercial or financial publications are likely to have already been disseminated to a large audience, which means that the information is already reflected in the market prices of the assets. As a result, there is no guarantee that trading on tips will result in profitable trades. Additionally, accuracy of the news contained in the tips is not mentioned as a reason why trading on tips is unlikely to lead to profitable trades in the given context. The other options (A and B) do not accurately reflect the reasons why tips are unlikely to lead to profitable trades.

Question 17

The efficient markets hypothesis predicts that an investor

Accepted Answer

The efficient markets hypothesis states that stock prices already reflect all available information, and therefore, it is not possible to consistently earn above-normal profits by buying or selling stocks. This is because any information that could impact the stock's price is already reflected in the market price. Therefore, option A is the best choice as the others suggest the ability of investors to consistently earn above-normal profits, which is not supported by the efficient markets hypothesis.

Question 18

Suppose that Google announces that its profits for the third quarter of 2016 were $1.6 billion.As a result of this announcement the price of Google's stock declines.The best explanation of this is

Accepted Answer

The decline in the stock price suggests that market participants had expected Google's profits to be higher than $1.6 billion for the third quarter.

Question 19

Above-normal returns on stock investments can be expected by investors who

Accepted Answer

Possessing inside information can provide an investor with an unfair advantage in predicting stock movements, potentially leading to above-normal returns. This practice, however, is illegal and unethical.

Question 20

Suppose Apple announces that its earnings for the fourth quarter of 2016 rose to $2 billion.As a result of this announcement the price of Apple's stock does not change.The best explanation of this is

Accepted Answer

The price of Apple's stock did not change because the actual earnings matched the market participants' expectations of $2 billion, indicating that the information was already priced into the stock.

Quiz 6: The Stock Market, information, and Financial Market Efficiency

According to the efficient markets hypothesis,the difference between today's price for a share of stock and tomorrow's price is

According to the efficient markets hypothesis,who is most likely to benefit from frequently moving funds from one asset to another?

According to the efficient markets hypothesis

According to the efficient markets hypothesis,prices of securities

In comparing actively managed mutual funds with those funds that simply buy and hold a large market portfolio (index funds) ,we would expect that

Technical analysis is a version of

One implication of the efficient markets hypothesis is that investors should

The long-run average annual return on investments in the stock market is than the annual returns on investments in Treasury bills and than the annual returns on investments in bank CDs.

Under the efficient markets hypothesis,what would be the price per share of a company whose current dividend is $10.00 and whose dividends are expected to grow by 3% per year (assume the risk-adjusted interest rate is 10%) ?

According to the efficient markets hypothesis

Suppose Exxon-Mobil announces that its profits in the third quarter of 2016 were $40 billion.This will cause the price of Exxon-Mobil stock to

An investor will generally find that hiring an investment firm to actively manage his or her portfolio will

An implication of the efficient markets hypothesis is that

Under the efficient markets hypothesis,for news about a company's prospects to have a large impact on the price of the company's stock,the news must

The efficient markets hypothesis

"Tips" published in leading commercial or financial publications are unlikely to lead to profitable trades because

The efficient markets hypothesis predicts that an investor

Suppose that Google announces that its profits for the third quarter of 2016 were $1.6 billion.As a result of this announcement the price of Google's stock declines.The best explanation of this is

Above-normal returns on stock investments can be expected by investors who

Suppose Apple announces that its earnings for the fourth quarter of 2016 rose to $2 billion.As a result of this announcement the price of Apple's stock does not change.The best explanation of this is