ECO 316 Week 3 Quiz - All Questions Answered Correctly - Best Tutorial

Question 1.Excess volatility refers to 

•   the unwillingness of financial analysts to consistently recommend the same stocks.   
•   the greater volatility of futures prices compared to the volatility of prices of the underlying assets.   
•   the tendency for stocks with high rates of returns also to have quite variable returns.   
•   the larger movements in market prices of stock than in their fundamental values.

Question 2.Hedgers are primarily interested in 

•   betting on anticipated changes in prices.   
•   reducing their exposure to the risk of price fluctuations.   
•   increasing market liquidity.   
•   reducing the spread between bid and ask prices on bonds.   

Question 3.An implication of the efficient markets hypothesis is that 

•   only sophisticated investors will be able to earn above-normal profits from financial investments.   
•   above-normal profits are available only to major traders.   
•   above-normal profits will be eliminated in the trading process.   
•   unless he or she acts recklessly, the average investor should be able to make above-normal profits.   

Question 4.Forward transactions would be useful to

•   a government wanting to know the size of its future debt.   
•   a household wanting to reduce its future tax liability.   
•   a business wanting to know the cost of its funds on future loans.   
•   a business wanting to expand its operations in overseas markets.   

Question 5.The difference between a firm's assets and its liabilities is known as: 

•   limited liability   
•   stock   
•   equity   
•   profit  

Question 6.If major traders believe the price of a stock should be higher than its current market price, 

•   they have an incentive to sell the stock.   
•   their actions will result in the information they possess being incorporated into the price of the stock.   
•   there is little they can do because government regulation precludes their acting on what they know.   
•   they should petition the Securities and Exchange Commission to authorize an adjustment in the price of the stock.   

Question 7.A chief criticism of adaptive expectations is that 

•   it assumes people ignore information that would be useful in making forecasts   
•   people have a hard time adapting   
•   it doesn't rely on technical analysis   
•   it violates the efficient markets hypothesis   

Question 8.In Wall Street Jargon, a "Bear Market" typically means 

•   stock prices have declined by at least 20%.   
•   stock prices have declined by at least 50%.   
•   stock prices have risen by at least 20%.   
•   stock prices have risen by at least 50%.

Question 9.One implication of the efficient markets hypothesis is that investors should 

•   concentrate their investments in just a few well-chosen assets.   
•   hold a diversified portfolio of assets.   
•   buy stocks rather than bonds.   
•   buy bonds rather than stocks.   

Question 10.According to the efficient markets hypothesis, who is most likely to benefit from frequently moving funds from one asset to another?

•   your broker   
•   small investors   
•   big investors   
•   only those who consistently beat the market