Version A 5. After careful analysis of earnings announcements, you discover that you can make abnormal returns by ouying shares of stock in firms with the best earnings surprise news and selling shares of stock in firms with tihe worst earnings surprise news. This is: A. not a violation of market efficiency B. a violation of weak form efficiency C. a violation of semistrong form efficiency D. a violation of strong form efficiency E. an example of technical analysis. 6. The study of published financial information on a company in order to make investment decisions is known A. technical analysis. B. fundamental analysis. C. efficiency analysis. D, random pricing analysis. E. insider trading. 7. LookGood, Inc. has just announced that its earnings have dropped by 30 percent. In fact, its investors had anticipated even worse results (a decrease of 40 percent). As a result, LookGood's stock price will: A. increase. B. remain the same. C. decrease D. follow a random walk as usual. E. cannot be determined. 8. The risk-free rate is 6 percent. Stock A has a beta of.8, an expected return of 10 percent, and is fairly priced according to the CAPM. Stock B has a beta of 1.2 and an expected return of 11.5 percent. Which one of the following statements is correct given this information? (Hint: calculate the reward to risk ratios.) A. Stock B is fairly priced and plots on the Security Market Line (SML). B. Stock B is overpriced and plots above the SML. C. Stock B is overpriced and plots below the SML. D. Stock B is underpriced and plots above the SML E. Stock B is underpriced and plots below the SML