the economics of money, banking, and financial markets

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7.2 How the Market Sets Stock Prices

1. 
   

   In asset markets, an asset's price is ____.
   A) set equal to the highest price a seller will accept
   B) set equal to the highest price a buyer is willing to pay
   C) set equal to the lowest price a seller is willing to accept
   D) set by the buyer willing to pay the highest price
   Answer: D
   Diff: 1 Type: MC Page Ref: 142
   Skill: Applied
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


2. 
   

   Information plays an important role in asset pricing because it allows the buyer to more
   accurately judge ____.
   A) liquidity
   B) risk
   C) capital
   D) policy
   Answer: B
   Diff: 1 Type: MC Page Ref: 142
   Skill: Recall
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


3. 
   

   New information that might lead to a decrease in an asset's price might be ____.
   A) an expected decrease in the level of future dividends
   B) a decrease in the required rate of return
   C) an expected increase in the dividend growth rate
   D) an expected increase in the future sales price
   Answer: A
   Diff: 2 Type: MC Page Ref: 142
   Skill: Applied
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


4. 
   

   A change in perceived risk of a stock changes ____.
   A) the expected dividend growth rate
   B) the expected sales price
   C) the required rate of return
   D) the current dividend
   Answer: C
   Diff: 2 Type: MC Page Ref: 142
   Skill: Recall
   Objective List: 7.2 Determine how information in the market affects asset prices