Finance

What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?

16 percent

Question Which one of the following statements is correct concerning market efficiency?

A firm will generally receive a fair price when it issues new shares of stock.

Which one of the following statements best defines the efficient market hypothesis?

All securities in an efficient market are zero net present value investments.

Which of the following statements related to market efficiency tend to be supported by current evidence? I. Markets tend to respond quickly to new information. II. It is difficult for investors to earn abnormal returns. III. Short-run prices are difficult to predict accurately based on public information. IV. Markets are most likely weak form efficient

I, II, and III only

If the variability of the returns on large-company stocks were to increase over the long- term, you would expect which of the following to occur as a result? I. decrease in the average rate of return II. increase in the risk premium III. increase in the 68 percent probability range of the frequency distribution of returns IV. decrease in the standard deviation

II and III only

Which of the following correspond to a wide frequency distribution? I. relatively low risk II. relatively low rate of return III. relatively high standard deviation IV. relatively large risk premium

III and IV only

Which of the following statements are true based on the historical record for 1926-2007? I. Risk and potential reward are inversely related. II. Risk-free securities produce a positive real rate of return each year. III. Returns are more predictable over the short-term than they are over the long-term. IV. Bonds are generally a safer investment than are stocks.

IV only

Which one of the following best defines the variance of an investment's annual returns over a number of years?

The average squared difference between the actual returns and the arithmetic average return.

Which one of the following statements is correct?

The greater the volatility of returns, the greater the risk premium.

Which one of the following was the least volatile over the period of 1926-2007?

U.S. Treasury bills

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. Which one of the following terms best defines that market

efficient capital market

To convince investors to accept greater volatility, you must:

increase the risk premium.

Question According to theory, studying historical stock price movements to identify mispriced stocks:

is ineffective even when the market is only weak form efficient.

Question Individuals who continually monitor the financial markets seeking mispriced securities:

make the markets increasingly more efficient.

Which one of the following is defined by its mean and its standard deviation?

normal distribution

You are aware that your neighbor trades stocks based on confidential information he overhears at his workplace. This information is not available to the general public. This neighbor continually brags to you about the profits he earns on these trades. Given this, you would tend to argue that the financial markets are at best _____ form efficient.

semistrong

Which one of the following is a correct ranking of securities based on their volatility over the period of 1926-2007? Rank from highest to lowest

small company stocks, long-term corporate bonds, intermediate-term government bonds

Which one of the following categories of securities has had the most volatile returns over the period 1926-2007?

small-company stocks

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient. Answer

strong

Question Inside information has the least value when financial markets are:

strong form efficient.

Question Efficient financial markets fluctuate continuously because:

the markets are continually reacting to new information.

Standard deviation is a measure of which one of the following?

volatility

Question If you excel in analyzing the future outlook of firms, you would prefer the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

weak

Question Which one of the following is most indicative of a totally efficient stock market?

zero net present values for all stock investments

Which two of the following are the most likely reasons why a stock price might not react at all on the day that new information related to the stock issuer is released? I. insiders knew the information prior to the announcement II. investors need time to digest the information prior to reacting III. the information has no bearing on the value of the firm IV. the information was anticipated

III and IV only

Which one of the following statements is correct based on the historical record for the period 1926-2007?

Long-term government bonds had a lower return but a higher standard deviation on average than did long-term corporate bonds.