7.8

a. False. The levels of successive stock prices are related. If a stock is selling for $100 per share today, the best guess of its price tomorrow is $100.

b. True. Changes in stock prices are unrelated. Whether a stock price increases or decreases today has no bearing on whether it will do so tomorrow.

c. False. There is no such thing as a "normal" price. If there were, you could make easy prof- its by buying shares selling below their normal prices (which would tend to be rising back toward those normal levels) and selling shares currently selling above their normal prices. Under a random walk, prices are equally likely to rise or fall.

d. True. Under a random walk, prices are equally likely to over- or underperform regardless of their past history.