Unit 05

Which of the following is the least broad-based measure of stock prices?

DJIA

One anomaly to the efficient market hypothesis is that investments in debt of large firms will earn higher or lower returns than investments in their stock?

Lower

The Dow Jones Russell 3000 is a broad-based measure of bond or stock prices?

Stock

Investors may use P/E ratios and price/sales ratios to value stocks. If this analysis is used, which of the following is desirable?

a low P/E and a low price/sales ratio

The use of price to book ratios to select stocks suggests that

a stock should be purchased if it is selling near its historic low price to book ratio

In stock valuation, higher required returns

are associated with lower stock values

An investment's internal rate of return equates

cash outflows and subsequent cash inflows

Higher required returns...

decrease stock prices

The required rate of return does or does not include the risk-free rate and a risk premium.

does

Which of the following is not an example of an anomaly to the efficient market hypothesis?

high beta stocks

The Russell 1000 index

is a broad measure of listed and Nasdaq stocks

Movements in individual stock prices tend to be

positively correlated

Use of P/E ratios will not produce superior investment results according to the

semi-strong form of the efficient market hypothesis

The weak form of the efficient market hypothesis implies

studying past price behavior does not lead to superior investment decisions

The price to sales ratio may be a preferred analytical tool if

the firm is not generating earnings

According to the dividend-growth model, the valuation of common stock depends on...

the firm's dividends & investors' required rate of return

If the ratio of price to book exceeds 1.0,

the price of the stock is greater than the accounting value of the firm

The Ibbotson Associates studies of rates of return suggest that

treasury bills match the rate of inflation, stocks of smaller companies generated higher returns than larger companies, & corporate bonds generate higher returns than treasury bonds.

Use of fundamental analysis tools such as P/E ratios may produce superior investment results according to the

weak form of the efficient market hypothesis