the economics of money, banking, and financial markets

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9. 
   

   If in an efficient market all prices are correct and reflect market fundamentals, which of the
   following is a false statement?
   A) A stock that has done poorly in the past is more likely to do well in the future
   B) One investment is as good as any other because the securities' prices are correct
   C) A security's price reflects all available information about the intrinsic value of the security
   D) Security prices can be used by managers to assess their cost of capital accurately
   Answer: A
   Diff: 3 Type: MC Page Ref: 149 - 153
   Skill: Applied
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


10. 
    

    According to the efficient markets hypothesis, purchasing the reports of financial analysts
    ____.
    A) is likely to increase one's returns by an average of 10 percent
    B) is likely to increase one's returns by about 3 to 5 percent
    C) is not likely to be an effective strategy for increasing financial returns
    D) is likely to increase one's returns by an average of about 2 to 3 percent
    Answer: C
    Diff: 3 Type: MC Page Ref: 150
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices

    
    


11. 
    

    You have observed that the forecasts of an investment advisor consistently outperform the
    other reported forecasts. The efficient markets hypothesis says that future forecasts by this
    advisor ____.
    A) may or may not be better than the other forecasts Past performance is no guarantee of the
    future
    B) will always be the best of the group
    C) will definitely be worse in the future What goes up must come down
    D) will be worse in the near future, but improve over time
    Answer: A
    Diff: 3 Type: MC Page Ref: 151
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices

    
    


12. 
    

    Sometimes one observes that the price of a company's stock falls after the announcement of
    favorable earnings. This phenomenon is ____.
    A) clearly inconsistent with the efficient markets hypothesis
    B) consistent with the efficient markets hypothesis if the earnings were not as high as anticipated
    C) consistent with the efficient markets hypothesis if the earnings were not as low as anticipated
    D) consistent with the efficient markets hypothesis if the favorable earnings were expected
    Answer: B
    Diff: 3 Type: MC Page Ref: 151 - 152
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices