Question :
11) You have observed that the forecasts of an investment : 1373691
11) You have observed that the forecasts of an investment advisor consistently outperform the other reported forecasts. The efficient markets hypothesis says that future forecasts by this advisor
A) may or may not be better than the other forecasts. Past performance is no guarantee of the future.
B) will always be the best of the group.
C) will definitely be worse in the future. What goes up must come down.
D) will be worse in the near future, but improve over time.
12) Which of the following types of information most likely allows the exploitation of a profit opportunity?
A) Financial analysts’ published recommendations
B) Technical analysis
C) Hot tips from a stockbroker
D) Insider information
13) Sometimes one observes that the price of a company’s stock falls after the announcement of favorable earnings. This phenomenon is
A) clearly inconsistent with the efficient markets hypothesis.
B) consistent with the efficient markets hypothesis if the earnings were not as high as anticipated.
C) consistent with the efficient markets hypothesis if the earnings were not as low as anticipated.
D) consistent with the efficient markets hypothesis if the favorable earnings were expected.
14) You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gateway’s profitability. If you decide to invest in Gateway stock, you can expect to earn
A) above average returns since you will share in the higher profits.
B) above average returns since your stock price will definitely appreciate as higher profits are earned.
C) below average returns since computer makers have low profit rates.
D) a normal return since stock prices adjust to reflect expected changes in profitability almost immediately.
15) The efficient markets hypothesis indicates that investors
A) can use the advice of technical analysts to outperform the market.
B) do better on average if they adopt a “buy and hold” strategy.
C) let too many unexploited profit opportunities go by if they adopt a “buy and hold” strategy.
D) do better if they purchase loaded mutual funds.
16) The efficient markets hypothesis suggests that investors
A) should purchase no-load mutual funds which have low management fees.
B) can use the advice of technical analysts to outperform the market.
C) let too many unexploited profit opportunities go by if they adopt a “buy and hold” strategy.
D) act on all “hot tips” they hear.
17) The advantage of a “buy-and-hold strategy” is that
A) net profits will tend to be higher because there will be fewer brokerage commissions.
B) losses will eventually be eliminated.
C) the longer a stock is held, the higher will be its price.
D) profits are guaranteed.
18) For small investors, the best way to pursue a “buy and hold” strategy is to
A) buy and sell individual stocks frequently.
B) buy no-load mutual funds with high management fees.
C) buy no-load mutual funds with low management fees.
D) buy load mutual funds.
19) A situation when an asset price differs from its fundamental value is
A) a random walk.
B) an inflation.
C) a deflation.
D) a bubble.
20) In a rational bubble, investors can have ________ expectations that a bubble is occurring but continue to hold the asset anyway.
A) irrational
B) adaptive
C) rational
D) myopic
21) If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%, what should happen to the price of the corporation’s stock if the efficient markets hypothesis holds, everything else held constant?
22) Your best friend calls and gives you the latest stock market “hot tip” that he heard at the health club. Should you act on this information? Why or why not?
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