QUESTION 20 Under what forms of Efficient Market Hypothesis, investors can profi
ID: 2738831 • Letter: Q
Question
QUESTION 20
Under what forms of Efficient Market Hypothesis, investors can profit via fundamental analysis? ______
Weak-form Efficient Market Hypothesis
Semi-strong form Efficient Market Hypothesis
Strong-form Efficient Market Hypothesis
None of the above is correct.
5 points
QUESTION 21
In market equilibrium, stock price is stable. There is no tendency for people to buy versus to sell. The reason is that the expected rate of return is equal to required rate of return in equilibrium and stocks are fairly priced. ______
True
False
5 points
QUESTION 22
Which of following factors may affect stock price? ______
Inflation expectations
Risk aversion
Company-specific risk
The change of dividend growth rate g
All of above
5 points
QUESTION 23
Other than dividend growth model, we can employ Market Multiple Analysis method for stock valuation. We suppose a firm's estimated earnings per share is $2. The average price to earnings (P/E) ratio for similarly publicly traded firms is 10. What's the firm's expected stock price? ______
$20
$15
$17
$30
5 points
QUESTION 24
The firm's cost of external equity raised by issuing new stock is the same as the required rate of return on the firm's outstanding common stock after the consideration of floatation costs. ______
True
False
5 points
QUESTION 25
Which of the following statements about sinking fund is true? ______
Sinking funds are designed to protect bondholders, so it never hurts the bondholders in any situations.
A company would use sinking fund for open market purchase of bond if the interest rate is much lower than its coupon rate.
A company would prefer to use sinking fund to call bond if bond sells at a premium.
5 points
QUESTION 26
You just inherited $10,000. You are investing this money for two years at 5% compounding interest. In whole dollars, how much money will you have at the end of the two years?
$10,500
$11,000
$11,025
$12,000
5 points
QUESTION 27
What's value of a preferred stock if we assume it has an annual dividend $4 per share and the required rate of return is 8%? ______
$ 8
$ 64
$ 50
$ 100
5 points
QUESTION 28
Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: T-bond = 7.72%; A = 9.64%; AAA = 8.72%; BBB = 10.18%. The differences in rates among these issues were most probably caused primarily by:______
Tax effects.
Default risk premium.
Maturity risk premium
Liquidity risk premium.
5 points
QUESTION 29
John purchased 100 shares of Google common stock today. This transaction occurs in the:
Primary market.
Secondary market.
Credit market.
Money market.
5 points
QUESTION 30
An increase in a firm's expected growth rate would normally cause its required rate of return to
increase.
decrease.
remain constant.
possibly increase, possibly decrease, or possibly have no effect.
Weak-form Efficient Market Hypothesis
Semi-strong form Efficient Market Hypothesis
Strong-form Efficient Market Hypothesis
None of the above is correct.
Explanation / Answer
QUESTION 20
Under what forms of Efficient Market Hypothesis, investors can profit via fundamental analysis =
ANSWER = A) Weak-form Efficient Market Hypothesis
QUESTION 21
In market equilibrium, stock price is stable. There is no tendency for people to buy versus to sell. The reason is that the expected rate of return is equal to required rate of return in equilibrium and stocks are fairly priced. ______
ANSWER = A) TRUE
QUESTION 22
Which of following factors may affect stock price?
ANSWER = D) All of above
QUESTION 23
Other than dividend growth model, we can employ Market Multiple Analysis method for stock valuation. We suppose a firm's estimated earnings per share is $2. The average price to earnings (P/E) ratio for similarly publicly traded firms is 10. What's the firm's expected stock price?
ANSWER = firm’s expected stock price = EPS * P/E ratio
= $2 *10
=$20
ANSWER A) $20
QUESTION 24
The firm's cost of external equity raised by issuing new stock is the same as the required rate of return on the firm's outstanding common stock after the consideration of floatation costs.
ANSWER= B) False
QUESTION 25
Which of the following statements about sinking fund is true? ______
ANSWER = B) A company would use sinking fund for open market purchase of bond if the interest rate is much lower than its coupon rate.
QUESTION 26
You just inherited $10,000. You are investing this money for two years at 5% compounding interest. In whole dollars, how much money will you have at the end of the two years?
ANSWER
FV = PV * (1+ r)t
FV = $10,000 * (1+ 0.05)2
= $11025
Answer c) $11025
QUESTION 27
What's value of a preferred stock if we assume it has an annual dividend $4 per share and the required rate of return is 8%?
ANSWER =
VALUE OF PREFERRED STOCK = DIVIDEND PER SHARE/ REQUIRED RATE OF RETURN
= $4 / 0.08
= $50
ANSWER = C) $50