Question 1.1. If major traders believe the price of a stock should be higher than its current market price, (Points : 1)

they have an incentive to sell the stock. their actions will result in the information they possess being incorporated into the price of the stock. there is little they can do because government regulation precludes their acting on what they know. they should petition the Securities and Exchange Commission to authorize an adjustment in the price of the stock.

Question 2.2. A chief criticism of adaptive expectations is that (Points : 1)

it assumes people ignore information that would be useful in making forecasts people have a hard time adapting it doesn't rely on technical analysis it violates the efficient markets hypothesis

Question 3.3. Hedgers are primarily interested in (Points : 1)

betting on anticipated changes in prices. reducing their exposure to the risk of price fluctuations. increasing market liquidity. reducing the spread between bid and ask prices on bonds.

Question 4.4. The required return on equity for an individual stock includes which of the following? (Points : 1)

systemic risk idiosyncratic risk risk-free interest rate all of the above

Question 5.5. Which of the following is NOT a benefit of derivatives? (Points : 1)

risk sharing guaranteed minimum profit liquidity information services

Question 6.6. Using forward transactions allows (Points : 1)

holders of common stock to lock in future dividend payments. the federal government to stabilize fluctuations in tax receipts. corporations to reduce problems arising from future fluctuations in their dividend payments. both buyers and sellers to reduce risks associated with price fluctuations.

Question 7.7. Suppose you plan to hold a stock for one year. You expect that, in one year, it will sell for $30 and pay a dividend of $3 per share. If your required return on equity is 10%, what is the most you should be willing to pay for the share today? (Points : 1)

$3.30 $23 $30 $33

Question 8.8. According to the Gordon-Growth model, what is the value of a stock with a dividend of $1, required return on equity of 10% and expected growth rate of dividends of 5%? (Points : 1)

$2 $10 $20 $21

Question 9.9. If the prices of financial assets follow a random walk, then (Points : 1)

they should be easy to forecast, provided market participants have rational expectations. they should be easy to forecast, provided market participants have adaptive expectations. the change in price from one trading period to the next is not predictable. major traders in the market must not be making use of all available information about the assets.

Question 10.10. In derivative markets, trade takes place in (Points : 1)

assets such as bonds or common stock that derive their value from the value of the companies which issue them. assets whose rates of returns must be derived from information published in financial tables. assets that derive their value from underlying assets. assets which are not allowed to be traded on organized exchanges.