Ch 7 -- Intermediate Finance (T/F)

Fundamental analysts attempt to get rich by identifying patterns in stock prices.

False

If the stock prices follow a random walk, successive stock prices are not related.

False

Strong-form market efficiency implies that one could earn above-average returns by examining the history of a firm's stock price.

False

Sustainable growth rates can be estimated by multiplying a firm's ROE by its dividend payout ratio.

False

Technical analysts have no effect on the efficiency of the stock market.

False

Technical analysts would be more likely than other investors to index their portfolios.

False

The dividend discount model should not be used to value stocks in which the dividend does not grow.

False

The liquidation value of a firm is equal to the book value of the firm.

False

An excess of market value over the book value of equity can be attributed to going concern value.

True

If investors believe a company will have the opportunity to make very profitable investments in the future, they will pay more for the company's stock today.

True

If security prices follow a random walk, then on any particular day the odds are that an increase or decrease in price is equally likely.

True

If the market is efficient, stock prices should be expected to react only to new information that is released.

True

Market efficiency implies that security prices impound new information quickly.

True

Market value, unlike book value and liquidation value, treats the firm as a going concern.

True

Securities with the same expected risk should offer the same expected rate of return.

True

The dividend discount model indicates that the value of a stock is the present value of the dividends it will pay over the investor's horizon, plus the present value of the expected stock price at the end of that horizon.

True

The dividend discount model states that today's stock price equals the present value of all expected future dividends.

True

The dividend yield of a stock is much like the current yield of a bond. Both ignore prospective capital gains or losses.

True

The intent of technical analysis is to discover patterns in past stock prices.

True