BA 360- Introduction to Financial Management (Ch 12)
Strong Form Efficiency
It implies that all information of every kind is reflected in stock prices.
Weak Form Efficiency
It suggests that, at a minimum, the current price of a stock reflects the stock's own past prices.
True or false: The existence of traders attempting to beat the market is a necessary precondition for markets to become efficient.
True
Which of the following are true? Multiple select question. - T-bills sometimes outperform common stocks. - T-bills occasionally show negative returns. - On average, T-bills outperform common stocks. - Common stocks may experience negative returns.
- T-bills sometimes outperform common stocks. - Common stocks may experience negative returns.
If the market changes and stock prices instantly and fully reflect new information, which time path does such a change exhibit? - An overreaction and correction - A delayed reaction - An efficient market reaction
An efficient market reaction
Least to most risky investments
US T Bills Long Term Corporate Bonds Large company stocks Small company stocks
The dividend yield for a 1-year period is equal to the annual dividend amount divided by the ______. - ending stock price - average of the beginning and ending stock prices - beginning stock price
beginning stock price
If you buy a stock for $10 and later sell it for $16, you will have a ____. dividend of 6 capital gain of 6 capital loss of 6 capital gain of 16
capital gain of $6
When a company declares a dividend, shareholders generally receive ______. - store credit - cash - interest income - promissory notes
cash
The ______ rate of return is the difference between risky returns and risk-free returns. - real - nominal - subliminal - excess
excess
Normally, the excess rate of return on risky assets is ___. zero negative positive
positive because investors expect to be paid extra return for taking risks
The excess return on a risky asset is the difference between the risky return and the ____ rate. Multiple choice question. - federal funds - prime - inflation - risk-free
risk-free rate
A capital gain on a stock results from an increase in ______. - stock price - the dividend - the coupon rate
stock price
The efficient markets hypothesis contends that _____ capital markets such as the NASDAQ are efficient. - newer - monopolized - well-organized - foreign
well- organized
The dividend_____is defined as the annual dividend amount divided by the beginning stock price.
yield
Kate Corporation has discovered a very secret new product, but hasn't yet announced the discovery to the public. If the stock price reacts before the announcement (assuming no corporate "leaks"), the market is _____ form efficient. - semistrong - weak - strong
strong
The CPI is the most commonly used measure of _____.
Inflation
Dividends are the ______ component of the total return from investing in a stock. - amortization - income - price appreciation - capital gains
income
Stock prices fluctuate from day to day because of _____. - inefficiencies - information flow - conspiracies - manipulators
information flow
The Ibbotson-Sinquefield data show that over the long-term, ___. - small-company stocks generated the highest average return - T-bills, which had the lowest risk, generated the lowest return - small-company stocks had the highest risk level - large-company stocks generated the highest average return - long-term corporate bonds had the lowest risk
- small-company stocks generated the highest average return - T-bills, which had the lowest risk, generated the lowest return - small-company stocks had the highest risk level
Semistrong Form Efficiency
It is the most controversial, and all public information is reflected in the stock price.
Dividends are the ______ component of the total return from investing in a stock. - capital gains - amortization - price appreciation - income
income