the economics of money, banking, and financial markets

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13. 
    

    According to the efficient markets hypothesis, the current price of a financial security
    ____.
    A) is the discounted net present value of future interest payments
    B) is determined by the highest successful bidder
    C) fully reflects all available relevant information
    D) is a result of none of the above
    Answer: C
    Diff: 1 Type: MC Page Ref: 151 - 152
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices

    
    


14. 
    

    You read a story in the newspaper announcing the proposed merger of Dell Computer and
    Gateway. The merger is expected to greatly increase Gateway's profitability. If you decide to
    invest in Gateway stock, you can expect to earn ____.
    A) above average returns since you will share in the higher profits
    B) above average returns since your stock price will definitely appreciate as higher profits are
    earned
    C) below average returns since computer makers have low profit rates
    D) a normal return since stock prices adjust to reflect expected changes in profitability almost
    immediately
    Answer: D
    Diff: 3 Type: MC Page Ref: 151 - 152
    Skill: Applied
    Objective List: 7.2 Determine how information in the market affects asset prices

    
    


15. 
    

    The efficient markets hypothesis indicates that investors ____.
    A) can use the advice of technical analysts to outperform the market
    B) do better on average if they adopt a "buy and hold" strategy
    C) let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy
    D) do better if they purchase loaded mutual funds
    Answer: B
    Diff: 2 Type: MC Page Ref: 152
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices

    
    


16. 
    

    The efficient markets hypothesis suggests that investors ____.
    A) should purchase no-load mutual funds which have low management fees
    B) can use the advice of technical analysts to outperform the market
    C) let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy
    D) act on all "hot tips" they hear
    Answer: A
    Diff: 2 Type: MC Page Ref: 152
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices