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1) How do markets eliminate pricing errors created by irrational amateur investors? A) Through rational professional investors using arbitrage B) Through stock dividends and stock

1) How do markets eliminate pricing errors created by irrational amateur investors?

A)

Through rational professional investors using arbitrage

B)

Through stock dividends and stock splits

C)

Through derivatives trading in options markets

D)

Through monetary policy action

2) (T/F) Prices in semi strong form efficient markets only incorporate past information.

True

False

3) (T/F) There is empirical evidence that financial markets are strong form efficient.

True

False

4) Which of these, if true, would undermine the concept of market efficiency?

A)

Although most investors are rational, they dont all follow the same rational dictum

B)

Extended economic expansions and recessions can lead to investors becoming overly optimistic or pessimistic as a whole

C)

A significant number of investors may suffer from conservatism, making them slow to react to changing market conditions

D)

All of the above

5) Which of the following is an implication of the efficient markets hypothesis?

A)

The timing of stock and bond sales by managers can generate positive gains

B)

Managers cannot speculate in foreign currencies

C)

Security prices are random

D)

Securities should be chosen at random

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