[Solved] Does the Efficient Markets Hypothesis Imply That the Average Investor
Question 72
Multiple Choice
Question 72Does the efficient markets hypothesis imply that the average investor will not earn anything by purchasing stock?
A)No,the efficient market hypothesis implies that the average investor should not expect to receive abnormally high returns on a consistent basis.
B)Yes,the efficient markets hypothesis implies that the best that the average investor can do is break even.
C)No,the efficient market hypothesis implies that the investor will consistently earn abnormally high returns by purchasing stock.
D)Yes,the efficient markets hypothesis implies that stock purchases are extremely risky and that the average investor has no hope of recovering any loss.
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- Q67:You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gateway's profitability. If you decide to invest in Gateway stock,you can expect to earn A)above average returns since you will share in the higher profits. B)above average returns since your stock price will definitely appreciate as higher profits are earned. C)below average returns since computer makers have low profit rates. D)a normal return since stock prices adjust to reflect expected changes in profitability almost immediately.
- Q68:The efficient markets hypothesis indicates that investors A)can use the advice of technical analysts to outperform the market. B)do better on average if they adopt a "buy and hold" strategy. C)let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy. D)do better if they purchase loaded mutual funds.
- Q69:The efficient markets hypothesis suggests that investors A)should purchase no-load mutual funds which have low management fees. B)can use the advice of technical analysts to outperform the market. C)let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy. D)act on all "hot tips" they hear.
- Q70:The advantage of a "buy-and-hold strategy" is that A)net profits will tend to be higher because there will be fewer brokerage commissions. B)losses will eventually be eliminated. C)the longer a stock is held,the higher will be its price. D)profits are guaranteed.
- Q71:For small investors,the best way to pursue a "buy and hold" strategy is to A)buy and sell individual stocks frequently. B)buy no-load mutual funds with high management fees. C)buy no-load mutual funds with low management fees. D)buy load mutual funds.
- Q73:If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%,what should happen to the price of the corporation's stock if the efficient markets hypothesis holds,everything else held constant?
- Q74:Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club. Should you act on this information? Why or why not?
- Q75:If in an efficient market all prices are correct and reflect market fundamentals,which of the following is a FALSE statement? A)A stock that has done poorly in the past is more likely to do well in the future. B)One investment is as good as any other because the securities' prices are correct. C)A security's price reflects all available information about the intrinsic value of the security. D)Security prices can be used by managers to assess their cost of capital accurately.
- Q76:The efficient markets hypothesis implies that prices in the stock market A)follow a definite pattern. B)are more likely to go up than down. C)always undervalue the true assets of a corporation. D)are unpredictable.
- Q77:Stock market crashes lead us to believe that A)factors other than market fundamentals have an effect on asset prices. B)unexploited profit opportunities never exist. C)crashes are always predictable when market participants behave rationally. D)bubbles are a natural outcome of an efficient market.
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