Finance Exam1

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Chapter 8
1.Which of the following statements are true if the EMH holds? a.It implies that future events can be forecast with perfect accuracy. b.It implies that prices reflect all available info.
c.It implies that security prices change for no discernible reason. d.It implies that prices do not fluctuate.

2.In an EM, professional portfolio management can offer all of the following benefits expect a.Low-cost diversification
b.A targeted risk level
c.Low-cost record keeping
d.A superior risk-return trade-off

3.Which of the following most appears to contradict the proposition that the stock market is weakly efficient? a.Over 25% of mutual funds outperform the market on average b.Insiders earn abnormal trading profits

c.Every January, the stock market earns abnormal returns

4.Suppose that, after conducting an analysis of past stock prices, you come up with the following observations. Which would appear to contradict the weak form of the EMH? a.The average rate of return is significantly greater than zero b.The correlation between the return during a given week and the return during the following week is zero c.One could have made superior return by buying stock after a 10% rise in price and selling after a 10% fall d.One could have made higher-than-average capital gains by holding stocks with low dividend yields

5.Which of the following observations would provide evidence against the semistrong form of the EMH? a.Mutual fund managers do not on average make superior returns b.You cannot maker superior profits by buying(or selling)stocks after the announcement of an abnormal rise in dividends c.Low P/E stocks tend to have positive abnormal returns

d.In any year approximately 50% of pension funds outperform the market
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