1.XSS, Inc. announces that fourth quarter earnings were higher this year than last year (note: they hold to a policy of giving no earnings guidance). The market reaction is a fall in its stock price. This is evidence the market is not semistrong efficient.

Select one:

a.false, because an increase in earnings is always good news

b.false, because the relevant comparison is expected earnings, not last years earnings

c.true, because the market should have reacted with a price increase

d.false, because market efficiency and stock prices are not related

e.true, because the market obviously ignored the increased earnings

2. Because of frame dependence, investors tend to make better decisions when focusing on a frame _____.

Select one:

a.based on broad portfolio considerations

b.based only on potential gains

c.based on narrow individual security considerations

d.based only on potential losses.

e.based on historical performance

3. The P/E puzzle refers to the fact that stocks with _____ tend to have _____ than stocks at the opposite end of the P/E spectrum

Select one:

a.low P/E ratios; lower returns

b.low P/E ratios; lower risk

c.high P/E ratios; lower risk

d.high P/E ratios; lower returns

e.there is no such thing as the P/E puzzle

4.Which of the following are important considerations even if markets are efficient?

I. market timing	II. diversification	III. investment costs
IV. asset allocation	V. security selection	VI. risk-return relationship

Select one:

a.I only

b.II, III, IV, and VI only

c.I and V only

d.1, II and V only

e.I and IV only

5. Which of the following will lead to abnormal profits in a semistrong-form efficient market? I. private financial information II. historical price trends III. financial analysts reports IV. unreleased merger plans Select one:

a.I and IV only

b.II and III only

c.I only

d.I, III, and IV only

e.I, II, and III only