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Cards In This Set
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Efficient financial markets fluctuate continuously because:
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The markets are continually reacting to new information
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Which of the following are advantages of the payback method of project analysis?
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Liquidity and ease of use
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According to theory, studying historical stock price movements to identify mispriced stocks:
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Is ineffective even when the market is only weak form efficient
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A bond has a market price that exceeds its face value. Which of the following features currently apply to this bond?
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Premium price and YTM is less than the coupon rate
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Which one of the following relationships is stated correctly?
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Decreasing the time to maturity increase the price of a discount bond, all else constant
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You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?
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Long term zero coupon bond
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There are two distinct discount rates at which a particular project will have a zero net present value. In this situation, the project is said to:
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Have multiple rates of return
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The answer question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:
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A decrease in all stock values.
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Which of the following two are most likely reasons why a stock price might not react at all on the day that new info related to the stock issuer is released?
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The info has no bearing on the value of the firm and the info was anticipated.
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Which two of the following factors cause the yields on a corporate bond to differ from those on a comparable Treasury security?
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Taxability and default risk
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You are aware that your neighbor trades stocks based on confidential info he overhears at his work. This info is not available to the public. This neighbor continually brags to you about the profits he earns on these trades. Given this, you would tend to argue that the financial markets are at best ______ form efficient.
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Semistrong
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An increase in which of the following will increase the current value of a stock according to the dividend growth model?
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Dividend amount, number of future dividends provided the current number is less than infinite, and dividend growth rate. Not the discount rate.
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A project has a net present value of zero. Which one of the following best describes this project?
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The project's cash inflows equal its cash outflows in current dollar terms.
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Which one of the following statements is correct?
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The greater the volatility of returns, the greater the risk premium.
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Last year, T-bills returned 2% while your investment in large company stock earned an average of 5%. Which one of the following terms refers to the difference between these two rates of return?
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Risk premium
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