The stock market is perfectly efficient if:

		it is possible to earn a risk-free arbitrage profit by simultaneously buying and selling the same asset.
		any security offering higher historical rates of return necessarily entails greater risk
		any security offering a higher expected rate of return necessarily entails greater risk.
		only risk-free assets give a 0% expected rate of return.

1. In an efficient stock market, new information:

   		arrives in a random fashion.
   		arrives in a predictable fashion.
   		is biased.
   		is ignored by insiders and the general public.

   1. An unexpected announcement by the Chairmen of the Federal Reserve is made before the NYSE opens. The announcement indicates that the US economy is likely to enter into a prolonged recession. When the stock market opens the stock indexes fall by 6 percent in the first ten minutes of trading. This extreme downward movement in stock prices illustrates that markets are inefficient. Efficient markets would have priced this information into asset prices before the announcement.

      True

      False

   2. Random price movements indicate ________.

      		irrational markets
      		that prices cannot equal fundamental values
      		that technical analysis to uncover trends can be quite useful
      		that markets are functioning efficiently

   3. Important characteristic(s) of market efficiency is that _________________. I. there are no arbitrage opportunities II. security prices react quickly to new information III. active trading strategies will not consistently outperform passive strategies

      		I only
      		II only
      		I and III only
      		I, II and III

   4. According to Malkiel; Stock prices are random so returns over the long run are expected to be zero.

      True

      False

   5. According to Malkiel higher price earnings ratios indicate that the value of share will increase over the next year.

      True

      False

   6. If you borrow at 6 percent per year for five years and use the proceeds to buy a five year bond that has a Yield to Maturity of 8 percent your leveraged position is doomed because of credit risk. (Assume that all bonds pay interest semiannually and that all interest received is reinvested at 8% per year.)

      True

      False

   7. Positive abnormal returns for investors who buy stock after seeing the 13D filings that publicize Warren Buffett's common stock investment decisions constitute a violation of:

      		weak form efficiency.
      		semistrong-form efficiency.
      		strong-form efficiency.
      		none of these.