MB Test 7
According to the Efficient Market Hypothesis, the expected return is determined by several components, except the...
average price in the previous period.
Suppose a change in the way a variable moves such that it is much smaller than before. If adaptive expectations accurately represent how people form expectations, then the difference between the variable and its expected value is...
less than zero
Again, consider the effect of tight money policy on stock prices. Which of the following accurately describes the effects of tight money policy on stock prices, according to this model?
The economy would slow down, causing an increase in the denominator of the simplified Gordon growth model and a decrease in the price of stock P(0).
Consider tight money policy and its effects on stock prices via the simplified Gordon growth model equation. Which of the following accurately describes the effects of tight money policy on stock prices, according to this model?
The return on bonds and the required return on an equity investment k(e) would rise, while the price of stock P(0) would fall.
Suppose that the Fed engages in an expansionary monetary policy, which reduces interest rates. Which of the following statements best describes the impact of this event on the stock market?
There will be a decrease in the required rate of return on equities, a increase in the growth rate on dividends, and stock prices will rise.
Suppose that the Fed engages in an contractionary monetary policy, which raises interest rates. Which of the following statements best describes the impact of this event on the stock market?
There will be an increase in the required rate of return on equities, a decrease in the growth rate on dividends, and stock prices will fall.
Assume that the efficient market hypothesis holds. Marcos has been recently hired by a brokerage firm and claims that he now has access to the best market information. However, he is the "new guy," and no one at the firm tells him much about the business. Would you expect Marcos's clients to be better or worse off than the rest of the firm's clients?
Though Marco's clients would not be at any disadvantage, the hierarchy of the flow of information might be of an advantage to the rest of the firm's clients.
Interest rates have been at 5% for the past four years. The economy goes into a recession causing the Fed chairperson to announce an expansionary monetary policy with an interest rate target of 3.0%. You forecast interest rates for next year to be 5%. This is an example of applying the theory of...
adaptive expectations
Now consider the factor of high dividends that existed during the bull market of July 1997. Which of the following accurately describes the role these high dividends played in high stock prices?
D(0) was high, causing an increase in the numerator of the Gordon growth model equation
According to the Efficient Market Hypothesis, the expected return is determined by several components, including the...
cash payment the following period.
According to the Efficient Market Hypothesis, the expected return is determined by several components, including the...
cast payment the following period
Pricing behavior in an efficient market indicates that current prices will be set so that the optimal forecast of a security's return using all available information...
is equal to the security's equilibrium return.
Consider the factor of low interest rates that existed during the bull market in July 1997. Which of the following accurately describes the role these low interest rates played in high stock prices?
k(e) decreased, causing a decrease in the denominator of the Gordon growth model equation
According to the Gordon Growth Model, the price of stocks depend on the following except...
return on Treasure bills.
Monetary policy affects stock prices through the following except...
the changes in the price level.
Which of the following is not true regarding efficient markets?
Everyone in the market must be well-informed.
Which of the following is not considered to be a candidate for observed excessive volatility in stock prices?
Extreme fluctuations in the fundamental value of a given stock.
Finally, consider the factor of high projected dividend growth that existed during the bull market of July 1997. Which of the following accurately describes the role this high projected dividend growth played in high stock prices?
g was high, causing an increase in the numerator and a decrease in the denominator of the Gordon growth model equation
There are many faults associated with adaptive expectations except that...
past data do not help predict future values of variables.
If a company called Advanced Technologies has yet to pay a dividend on its stock, the generalized dividend model predicts that the company's stock may still have value because...
people expect Advanced Technologies to pay dividends in the future.
According to the Generalized Dividend Model, the final sales price of a stock depends on the following except the...
price of the stock in the last period.
