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.