Investments Final (CH 8,9,13,18) Study Set

The constant-growth dividend discount model (DDM) can be used only when the ___________. growth rate is less than or equal to the required return growth rate is greater than or equal to the required return growth rate is less than the required return growth rate is greater than the required return

growth rate is less than the required return

Suppose you purchase 100 shares of GM stock at the beginning of year 1 and purchase another 100 shares at the end of year 1. You sell all 200 shares at the end of year 2. Assume that the price of GM stock is $50 at the beginning of year 1, $55 at the end of year 1, and $65 at the end of year 2. Assume no dividends were paid on GM stock. Your dollar-weighted return on the stock will be __________ your time-weighted return on the stock. higher than the same as less than exactly proportional to

higher than

A mutual fund that attempts to hold quantities of shares in proportion to their representation in the market is called an __________ fund. stock indexCorrect hedge money market

index

Suppose two portfolios have the same average return and the same standard deviation of returns, but portfolio A has a higher beta than portfolio B. According to the Sharpe measure, the performance of portfolio A: is better than the performance of portfolio B. is the same as the performance of portfolio B. is poorer than the performance of portfolio B. cannot be measured as there are no data on the alpha of the portfolio.

is the same as the performance of portfolio B.

Everything else equal, which variable is negatively related to the intrinsic value of a company? D1 D0 g k

k

Value stocks are more likely to have a PEG ratio __________. less than 1 equal to 1 greater than 1 less than zero

less than 1

Suppose a particular investment earns an arithmetic return of 10% in year 1, 20% in year 2, and 30% in year 3. The geometric average return for the period will be: greater than the arithmetic average return. equal to the arithmetic average return. less than the arithmetic average return.Correct equal to the market return.

less than the arithmetic average return.

__________ is the amount of money per common share that could be realized by breaking up the firm, selling its assets, repaying its debt, and distributing the remainder to shareholders. Book value per share Liquidation value per share Market value per share Tobin's q

liquidation value per share

The primary objective of fundamental analysis is to identify __________. well-run firms poorly run firms mispriced stocks high P/E stocks

mispriced stocks

Fundamental analysis is likely to yield best results for __________. NYSE stocks neglected stocks stocks that are frequently in the news fast-growing companies

neglected stocks

Studies of style analysis have found that __________ of fund returns can be explained by asset allocation alone. between 50% and 60% less than 10% between 40 and 50% over 90%

over 90%

Market anomaly refers to __________. an exogenous shock to the market that is sharp but not persistent a price or volume event that is inconsistent with historical price or volume trends a trading or pricing structure that interferes with efficient buying and selling of securities price behavior that differs from the behavior predicted by the efficient market hypothesis

price behavior that differs from the behavior predicted by the efficient market hypothesis

The term random walk is used in investments to refer to __________. stock price changes that are random but predictable stock prices that respond slowly to both old and new information stock price changes that are random and unpredictableCorrect stock prices changes that follow the pattern of past price changes

stock price changes that are random and unpredictable

Most professionally managed equity funds generally: outperform the S&P 500 Index on both raw and risk-adjusted return measures. underperform the S&P 500 Index on both raw and risk-adjusted return measures.Correct outperform the S&P 500 Index on raw return measures and underperform the S&P 500 Index on risk-adjusted return measures. underperform the S&P 500 Index on raw return measures and outperform the S&P 500 Index on risk-adjusted return measures.

underperform the S&P 500 Index on both raw and risk-adjusted return measures.

Even if the markets are efficient, professional portfolio management is still important because it provides investors with: 1. Low-cost diversification 2. A portfolio with a specified risk level 3. Better risk-adjusted returns than an index

1 and 2

Value stocks may provide investors with better returns than growth stocks if: 1. Value stocks are out of favor with investors. 2. Prices of growth stocks include premiums for overly optimistic growth levels. 3. Value stocks are likely to generate positive-earnings surprises.

1,2 and 3

According to Markowitz and other proponents of modern portfolio theory, which of the following activities would not be expected to produce any benefits? Diversifying Investing in treasury bills Investing in stocks of utility companies Engaging in active portfolio management to enhance returns

Engaging in active portfolio management to enhance returns

Value stocks usually exhibit __________ price-to-book ratios and __________ price-to-earnings ratios. low; low low; high high; low high; high

Low and Low

New-economy companies generally have higher __________ than old-economy companies. book value per share P/E multiples profits asset values

P/E multiples

Which of the following is not a method employed by fundamental analysts? Analyzing the Fed's next interest rate move Relative strength analysis Earnings forecasting Incorrect Estimating the economic growth rate

Relative strength analysis

Choosing stocks by searching for predictable patterns in stock prices is called _________. fundamental analysis technical analysis index management random walk investing

Technical Analysis

Proponents of the EMH typically advocate __________. a conservative investment strategy a liberal investment strategy a passive investment strategy an aggressive investment strategy

a passive investment strategy

The strong form of the EMH states that __________ must be reflected in the current stock price. all security price and volume data all publicly available information all information, including inside informationCorrect all costless information

all information, including inside information

The weak-form of the EMH states that __________ must be reflected in the current stock price. all past information, including security price and volume dataCorrect all publicly available information all information, including inside information all costless information

all past information, including security price and volume data

The semistrong-form of the EMH states that __________ must be reflected in the current stock price. all security price and volume data all publicly available informationCorrect all information, including inside information all costless information

all publicly available information

Mutual funds show __________ evidence of serial correlation, and hedge funds show __________ evidence of serial correlation. almost no; almost no almost no; substantial substantial; substantial substantial; almost no

almost no; substantial

Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect __________. an abnormal price change immediately after the announcementCorrect an abnormal price increase before the announcement an abnormal price decrease after the announcement no abnormal price change before or after the announcement

an abnormal price change immediately after the announcement

The accounting measure of a firm's equity value generated by applying accounting principles to asset and liability acquisitions is called __________. book value market value liquidation value Tobin's q

book value

Testing many different trading rules until you find one that would have worked in the past is called __________. data mining perceived patterning pattern searching behavioral analysis

data mining

When the market risk premium rises, stock prices will __________. rise fall recover have excess volatility

fall