BA 360- Introduction to Financial Management (Ch 12)

Strong Form Efficiency

It implies that all information of every kind is reflected in stock prices.

Weak Form Efficiency

It suggests that, at a minimum, the current price of a stock reflects the stock's own past prices.

True or false: The existence of traders attempting to beat the market is a necessary precondition for markets to become efficient.

True

Which of the following are true? Multiple select question. - T-bills sometimes outperform common stocks. - T-bills occasionally show negative returns. - On average, T-bills outperform common stocks. - Common stocks may experience negative returns.

- T-bills sometimes outperform common stocks. - Common stocks may experience negative returns.

If the market changes and stock prices instantly and fully reflect new information, which time path does such a change exhibit? - An overreaction and correction - A delayed reaction - An efficient market reaction

An efficient market reaction

Least to most risky investments

US T Bills Long Term Corporate Bonds Large company stocks Small company stocks

The dividend yield for a 1-year period is equal to the annual dividend amount divided by the ______. - ending stock price - average of the beginning and ending stock prices - beginning stock price

beginning stock price

If you buy a stock for $10 and later sell it for $16, you will have a ____. dividend of 6 capital gain of 6 capital loss of 6 capital gain of 16

capital gain of $6

When a company declares a dividend, shareholders generally receive ______. - store credit - cash - interest income - promissory notes

cash

The ______ rate of return is the difference between risky returns and risk-free returns. - real - nominal - subliminal - excess

excess

Normally, the excess rate of return on risky assets is ___. zero negative positive

positive because investors expect to be paid extra return for taking risks

The excess return on a risky asset is the difference between the risky return and the ____ rate. Multiple choice question. - federal funds - prime - inflation - risk-free

risk-free rate

A capital gain on a stock results from an increase in ______. - stock price - the dividend - the coupon rate

stock price

The efficient markets hypothesis contends that _____ capital markets such as the NASDAQ are efficient. - newer - monopolized - well-organized - foreign

well- organized

The dividend_____is defined as the annual dividend amount divided by the beginning stock price.

yield

Kate Corporation has discovered a very secret new product, but hasn't yet announced the discovery to the public. If the stock price reacts before the announcement (assuming no corporate "leaks"), the market is _____ form efficient. - semistrong - weak - strong

strong

The CPI is the most commonly used measure of _____.

Inflation

Dividends are the ______ component of the total return from investing in a stock. - amortization - income - price appreciation - capital gains

income

Stock prices fluctuate from day to day because of _____. - inefficiencies - information flow - conspiracies - manipulators

information flow

The Ibbotson-Sinquefield data show that over the long-term, ___. - small-company stocks generated the highest average return - T-bills, which had the lowest risk, generated the lowest return - small-company stocks had the highest risk level - large-company stocks generated the highest average return - long-term corporate bonds had the lowest risk

- small-company stocks generated the highest average return - T-bills, which had the lowest risk, generated the lowest return - small-company stocks had the highest risk level

Semistrong Form Efficiency

It is the most controversial, and all public information is reflected in the stock price.

Dividends are the ______ component of the total return from investing in a stock. - capital gains - amortization - price appreciation - income

income