Question 1

In analyzing the financial decision of the firm, it turns out that the typical firm:

Accepted Answer

A)   has more capital expenditure opportunities with positive NPVs than financing opportunities.
B)   has more financing opportunities with positive NPVs than capital expenditure opportunities.
C)   has about the same number of capital expenditure opportunities and financing opportunities.
D)   has no opportunities for positive NPVs in either capital expenditures or in financing.E) A) and C)
F) C) and D)

Question 2

The Pan Fries Company just announced a new model of their cooker which will reduce cooking time and fat absorption. The price reaction of their stock is listed below. Calculate the abnormal return behavior, graph it and explain the behavior.

Accepted Answer

The answer of The Pan Fries Company just announced a...

Question 3

If the financial markets are efficient, then investors should expect their investments in those markets to:

Accepted Answer

A)   earn extraordinary returns on a routine basis.
B)   generally have positive net present values.
C)   generally have zero net present values.
D)   produce arbitrage opportunities on a routine basis.E) None of the above
F) A) and D)

Question 4

You have observed an apparent, yet odd, increase stock prices when companies have spun-off divisions. You have just collected the data on 50 such events. The average beta (market value weighted) is 1.15 for this group.

Accepted Answer

Little happens on Day -4 through -2 an...

Question 5

Under the concept of an efficient market a random walk in stock prices means that:

Accepted Answer

A)   there is no driving force behind price changes.
B)   technical analysts can predict future price movements to earn excess returns.
C)   the unexplained portion of price change in one period is unrelated to the unexplained portion of price change in any other period.
D)   the unexplained portion of price change in one period that can not be explained by expected return can only be explained by the unexplained portion of price change in a prior period.E) B) and C)
F) B) and D)

Question 6

Technical analysts believe that the:

Accepted Answer

A)   future stock prices are unpredictable and therefore plot past prices.
B)   stock prices are in equilibrium and advise not to follow price patterns.
C)   future stock prices are a reflection of the past and plot prices to find reoccurring price patterns.
D)   stock prices are only predictable based on the outlook for corporations earnings.
E)   SML is the most reliable predictor.F) None of the above
G) B) and E)

Question 7

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise. This contrary evidence happens because:

Accepted Answer

A)   markets are inefficient and unsure of the real value of the events.
B)   death is inevitable and market prices are random.
C)   things simply happen.
D)   the value of the founding executive was a negative to the firm.E) A) and C)
F) None of the above

Question 8

When the stock return data has been divided into market capitalization groups the return performance of:

Accepted Answer

A)   all such groups has been the same over time.
B)   small capitalization stocks have outperformed large capitalization stocks even after risk adjustment.
C)   small capitalization stocks have under performed large capitalization stocks once adjusted for risk.
D)   small and large capitalization stocks have performed equally on a risk-adjusted basis.E) None of the above
F) C) and D)

Question 9

Studies of the performance of professionally managed mutual funds find that these funds:

Accepted Answer

A)   Do not outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding refutes the semi-strong form of the efficient market hypothesis.
B)   Do not outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding supports the semi-strong form of the efficient market hypothesis.
C)   Outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding refutes the semi-strong form of the efficient market hypothesis.
D)   Outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding supports the semi-strong form of the efficient market hypothesis.E) B) and C)
F) A) and B)

Question 10

Explain why it is that in an efficient market, investments have an expected NPV of zero.

Accepted Answer

In an efficient market, prices are "fair...

Question 11

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

Accepted Answer

A)   Real asset markets are more efficient than financial markets.
B)   If a market is efficient, arbitrage opportunities should be common.
C)   In an efficient market, some market participants will have an advantage over others.
D)   A firm will generally receive a fair price when it sells shares of stock.E) B) and C)
F) None of the above

Question 12

In an efficient market, the price of a security will:

Accepted Answer

A)   always rise immediately upon the release of new information with no further price adjustments related to that information.
B)   react to new information over a two-day period after which time no further price adjustments related to that information will occur.
C)   rise sharply when new information is first released and then decline to a new stable level by the following day.
D)   react immediately to new information with no further price adjustments related to that information.E) A) and B)
F) A) and C)

Question 13

Ritter's study of Initial Public Offerings (IPOs)  showed that the post offering stock performance was:

Accepted Answer

A)   less than the control group by about 2% in the five years following the IPO.
B)   incorrectly priced at issuance because over the next five years the abnormal returns were greater than zero on average.
C)   immaterial to the pricing of the IPO because future market performance is unknown at issuance.
D)   equal across IPOs, irrespective of risk or which year they were issued.E) A) and B)
F) A) and C)

Question 14

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:

Accepted Answer

A)   rise gradually over the next few days.
B)   decline gradually over the next few days.
C)   rise on the same day to the new price.
D)   stay at the same price, with no net effect.
E)   drop on the same day to the new price.F) A) and B)
G) A) and E)

Question 15

Studies on the timing of corporate issues of new equities suggest that corporations tend to offer

Accepted Answer

A)   New issues after stock price increases. This behavior is consistent with the weak form of the efficient market hypothesis.
B)   New issues after stock price increases. This behavior is inconsistent with the weak form of the efficient market hypothesis.
C)   New issues randomly with regard to stock price changes. This behavior is consistent with the weak form of the efficient market hypothesis.
D)   New issues randomly with regard to stock price changes. This behavior is inconsistent with the weak form of the efficient market hypothesis.E) A) and C)
F) C) and D)

Question 16

A car maker announced a recall for faulty brakes. The company stock returned .004 the day before the announcement; -.001 the day of the announcement and .0045 the day after the announcement. The market average was .006, .0072 and .004 for the three days respectively. The daily beta for the car maker is .9. What are the three abnormal returns for the car maker's stock?

Accepted Answer

A)   -.002, -.0082, .0005
B)   -.002, -.00748, .0005
C)   .01, .0062, .0085
D)   -.0014, -.00748, .0009E) A) and B)
F) A) and C)

Question 17

If the securities market is efficient an investor need only throw darts at the stock pages to pick securities and be just as well off.

Accepted Answer

A)   This is true because there are no differences in risk and return.
B)   This is true because in an efficient stock market prices do not fluctuate.
C)   This is false because professional portfolio managers prefer to generate commissions.
D)   This is false because investors may not hold a desirable risk-return combination in their portfolio.
E)   This is false because the markets are controlled by the institutional investors.F) None of the above
G) D) and E)

Question 18

The market price of a stock moves or fluctuates daily. This fluctuation is:

Accepted Answer

A)   inconsistent with the semi-strong efficient market hypothesis because prices should be stable.
B)   inconsistent with the weak form efficient market hypothesis because all past information should be priced in.
C)   consistent with the semi-strong form of the efficient market hypothesis because as new information arrives daily prices will adjust to it.
D)   consistent with the strong form because prices are controlled by insiders.E) B) and C)
F) A) and D)

Question 19

When the stock price follows a random walk the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

Accepted Answer

A)   a predictable amount based on the past prices.
B)   a component based on new information unrelated to past prices.
C)   the security's risk.
D)   the risk free rate.E) All of the above
F) A) and B)

Exam 14: Corporate Financing Decisions and Efficient Capital Markets

In analyzing the financial decision of the firm, it turns out that the typical firm:

Correct Answer
verified

When the stock price follows a random walk the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

Correct Answer
verified

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise. This contrary evidence happens because:

Correct Answer
verified

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

Correct Answer
verified

The Pan Fries Company just announced a new model of their cooker which will reduce cooking time and fat absorption. The price reaction of their stock is listed below. Calculate the abnormal return behavior, graph it and explain the behavior.

Correct Answer
verified

Ritter's study of Initial Public Offerings (IPOs) showed that the post offering stock performance was:

Correct Answer
verified

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:

Correct Answer
verified

In an efficient market, the price of a security will:

Correct Answer
verified

Technical analysts believe that the:

Correct Answer
verified

If the financial markets are efficient, then investors should expect their investments in those markets to:

Correct Answer
verified

Studies of the performance of professionally managed mutual funds find that these funds:

Correct Answer
verified

When the stock return data has been divided into market capitalization groups the return performance of:

Correct Answer
verified

Correct Answer
verified

You have observed an apparent, yet odd, increase stock prices when companies have spun-off divisions. You have just collected the data on 50 such events. The average beta (market value weighted) is 1.15 for this group.

Correct Answer
verified

Little happens on Day -4 through -2 an...
View Answer

If the securities market is efficient an investor need only throw darts at the stock pages to pick securities and be just as well off.

Correct Answer
verified

Explain why it is that in an efficient market, investments have an expected NPV of zero.

Correct Answer
verified
In an efficient market, prices are "fair...
View Answer

The market price of a stock moves or fluctuates daily. This fluctuation is:

Correct Answer
verified

Under the concept of an efficient market a random walk in stock prices means that:

Correct Answer
verified

Studies on the timing of corporate issues of new equities suggest that corporations tend to offer

Correct Answer
verified

Exam 14: Corporate Financing Decisions and Efficient Capital Markets

In analyzing the financial decision of the firm, it turns out that the typical firm:

Correct AnswerverifiedShow Answer

When the stock price follows a random walk the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

Correct AnswerverifiedShow Answer

Evidence on stock prices finds that the sudden death of a chief executive officer causes stock prices to fall and the sudden death of an active founding chief executive officer causes stock price to rise. This contrary evidence happens because:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Pan Fries Company just announced a new model of their cooker which will reduce cooking time and fat absorption. The price reaction of their stock is listed below. Calculate the abnormal return behavior, graph it and explain the behavior.

Correct AnswerverifiedShow Answer

Ritter's study of Initial Public Offerings (IPOs) showed that the post offering stock performance was:

Correct AnswerverifiedShow Answer

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV the price of the stock will:

Correct AnswerverifiedShow Answer

In an efficient market, the price of a security will:

Correct AnswerverifiedShow Answer

Technical analysts believe that the:

Correct AnswerverifiedShow Answer

If the financial markets are efficient, then investors should expect their investments in those markets to:

Correct AnswerverifiedShow Answer

Studies of the performance of professionally managed mutual funds find that these funds:

Correct AnswerverifiedShow Answer

When the stock return data has been divided into market capitalization groups the return performance of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You have observed an apparent, yet odd, increase stock prices when companies have spun-off divisions. You have just collected the data on 50 such events. The average beta (market value weighted) is 1.15 for this group.

Correct Answerverified Little happens on Day -4 through -2 an...View AnswerShow Answer

If the securities market is efficient an investor need only throw darts at the stock pages to pick securities and be just as well off.

Correct AnswerverifiedShow Answer

Explain why it is that in an efficient market, investments have an expected NPV of zero.

Correct AnswerverifiedIn an efficient market, prices are "fair...View AnswerShow Answer

The market price of a stock moves or fluctuates daily. This fluctuation is:

Correct AnswerverifiedShow Answer

Under the concept of an efficient market a random walk in stock prices means that:

Correct AnswerverifiedShow Answer

Studies on the timing of corporate issues of new equities suggest that corporations tend to offer

Correct AnswerverifiedShow Answer

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Little happens on Day -4 through -2 an...
View Answer

Correct Answer
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Correct Answer
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In an efficient market, prices are "fair...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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