How would you explain that, although the efficient market hypotheses applies to the stock

1. How would you explain that, although the efficient market hypotheses applies to the stock market, you can't successfully invest by randomly selecting stocks? A. The hypothesis fails to fully explain the real market environment. B. The hypothesis fails to consider these monopolies, which
dominate certain segments of the market. C. Random selection of stocks would ignore an individual
investor’s goals. D. New theories are needed to explain stock price behavior
in the new economy.

2. What is the best reason to use the price-to-sales (P/S) ratio instead of the price-to-earnings

(P/E) ratio in valuing stocks?

A. The P/S ratio is influenced by a corporation’s book value.

B. The P/S ratio can be contrasted with the ratio of cash flow to price.

C. The P/S ratio doesn’t have the same weaknesses as the P/E ratio.

D. The P/S ratio is useful for stocks issued by corporations that have no earnings.

3. If you analyzed a stock’s value using the dividend growth model, you would discount

A. future cash flows from dividends, incorporating projected growth in dividends.

B. future cash flows from dividends and from the projected growth in the value of

the stock.

C. the future value of the stock, assuming a fixed growth and discount rate over a

preestablished time period.

D. the value of a fixed, periodic annuity the way you would discount the value of future

periodic interest payments.

4. If you wanted the safest investment among the following choices, which should you select?

A. The stock of large corporations paying high dividends

B. U.S. Treasury bills

C. The stock of small corporations

D. Long-term government bonds

5. At what rate does $1,000 grow to $1,953 after three years? Use the formula for the future

value of a lump sum, and assume annual compounding.

A. 25 percentC. 75 percent

B. 31.8 percent D. 95.3 percent

6. What is the holding period return on an investment of $1,000 held for 10 months with $30

in dividends and a selling price of $1,250?

A. 28 percent C. 23.3 percent

B. 25 percent D. 3 percent

7. Given a choice between calculating returns using the holding period return (HPR) or the

formula for the future value, you should select the future value formula because the

A. HPR fails to consider the discounted value of the purchase price.

B. future value formula incorporates the timing of cash flows.

C. HPR overstates the internal rate of return in direct proportion to the discount rate.

D. future value formula incorporates cash payments that are omitted in the HPR.

8. Which of the following statements most accurately explains the utility of the dividend

growth model?

A. Dividend growth increases the total return earned on equity investments.

B. Projected dividend growth can be incorporated into calculation of the discounted value of cash flows.

C. Stocks with rising dividends generally outperform stocks that don’t pay dividends or

that pay relatively static dividends.

D. Rising dividends, plotted as a function of time, appear as an exponential function with a

positive slope.

9. ABC Corporation recently announced its plans to pay a 5 percent stock dividend in addition

to its scheduled $0.32 quarterly dividend, which has been paid on its common stock in all

of the previous 13 quarters. The ex-dividend date will be one month after the announcement.

ABC Corporation hadn’t paid a stock dividend in the past nine years. You own 100

shares of ABC Corporation common stock valued at $68 per share. Which of the following

explanationsaccuratelyprojects the effect of these transactions?

A. Dilution will effect a 5 percent decline in price per share. That will be offset by the 2

percent (annualized) dividend for a net decline of 3 percent in the stock price.

B. The 5 percent stock dividend is equivalent to 1-for-20 stock split. Stock prices generally

rise after stocks split, so the 5 percent dilution effect will be reduced to either a price rise

or a decline that’s smaller than 5 percent.

C. The stock price will drop about 5 percent if all other factors remain constant.

D. The discounted value of the stock split and will render a price decline smaller than 5

percent.

10. If you purchase a stock one month before the date of record, if a friend purchases the

same stock on the ex-dividend date, and if both of you hold the stock at least two months,

A. both you and your friend receive the dividend.

B. your friend receives the dividend, you don’t.

C. you receive the dividend, your friend’s investment is uncertain.

D. you receive the dividend, your friend doesn’t.

11. In the absence of compelling empirical data to support technical analysis, which of these

arguments supports its use?

A. The Dow Theory has a long history of successful use and has earned respect in

nonacademic circles.

B. Traders of odd lots tend to be smaller, less sophisticated investors who reliably make

the wrong investment decisions.

C. Emotions lead to irrational investment decisions that can be overcome by applying a

strict set of technical methods.

D. Several technical methods capitalize on empirical data supporting the contention that

security prices move in the same direction.

12. The technical analysis methods presented in the textbook use

A. methods that are widely accepted in academic circles.

B. historical price and volume to predict future prices.

C. a combination of price, volume, and analysis of economic and industry factors to arrive

at the intrinsic value of the corporation.

D. methods that are unanimously rejected in academic circles.

13. The rationale behind a moving average is that

A. observations falling within one standard deviation of the moving average are expected

in approximately two-thirds of all observations, and when an observation falls outside of

this range, it’s indicative of a future change in the direction of prices.

B. deviation from historical trends may be indicative of a change in trend.

C. when observations fall more than 1.96 standard deviations from the moving average,

their probability is .05.

D. a change in the direction of the moving average indicates an opposite change in the

direction of stock prices.