QUESTION 1:

Which one of the following statements best defines the efficient market hypothesis?

Efficient markets limit competition.

Security prices in efficient markets remain steady as new information becomes available.

Mispriced securities are common in efficient markets.

All securities in an efficient market are zero net present value investments.

Profits are removed as a market incentive when markets become efficient.

QUESTION 2:

The Red Bud Co. pays a constant dividend of $2.80 a share. The company announced today that it will continue to do this for another 2 years after which time they will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 8.4 percent?

$5.60

$7.77

$3.16

$3.04

$4.97