QUESTION 20

Under what forms of Efficient Market Hypothesis, investors can profit via fundamental analysis? ______

		Weak-form Efficient Market Hypothesis
		Semi-strong form Efficient Market Hypothesis
		Strong-form Efficient Market Hypothesis
		None of the above is correct.

5 points

QUESTION 21

In market equilibrium, stock price is stable. There is no tendency for people to buy versus to sell. The reason is that the expected rate of return is equal to required rate of return in equilibrium and stocks are fairly priced. ______

True

False

5 points

QUESTION 22

Which of following factors may affect stock price? ______

		Inflation expectations
		Risk aversion
		Company-specific risk
		The change of dividend growth rate g
		All of above

5 points

QUESTION 23

Other than dividend growth model, we can employ Market Multiple Analysis method for stock valuation. We suppose a firm's estimated earnings per share is $2. The average price to earnings (P/E) ratio for similarly publicly traded firms is 10. What's the firm's expected stock price? ______

		$20
		$15
		$17
		$30

5 points

QUESTION 24

The firm's cost of external equity raised by issuing new stock is the same as the required rate of return on the firm's outstanding common stock after the consideration of floatation costs. ______

True

False

5 points

QUESTION 25

Which of the following statements about sinking fund is true? ______

		Sinking funds are designed to protect bondholders, so it never hurts the bondholders in any situations.
		A company would use sinking fund for open market purchase of bond if the interest rate is much lower than its coupon rate.
		A company would prefer to use sinking fund to call bond if bond sells at a premium.

5 points

QUESTION 26

You just inherited $10,000. You are investing this money for two years at 5% compounding interest. In whole dollars, how much money will you have at the end of the two years?

		$10,500
		$11,000
		$11,025
		$12,000

5 points

QUESTION 27

What's value of a preferred stock if we assume it has an annual dividend $4 per share and the required rate of return is 8%? ______

		$ 8
		$ 64
		$ 50
		$ 100

5 points

QUESTION 28

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: T-bond = 7.72%; A = 9.64%; AAA = 8.72%; BBB = 10.18%. The differences in rates among these issues were most probably caused primarily by:______

		Tax effects.
		Default risk premium.
		Maturity risk premium
		Liquidity risk premium.

5 points

QUESTION 29

John purchased 100 shares of Google common stock today. This transaction occurs in the:

		Primary market.
		Secondary market.
		Credit market.
		Money market.

5 points

QUESTION 30

An increase in a firm's expected growth rate would normally cause its required rate of return to

		increase.
		decrease.
		remain constant.
		possibly increase, possibly decrease, or possibly have no effect.