43) Which one of the following items is most apt to be considered material non-public
information? Assume that none of this information is known publicly.
A) Barbara knows that Sue, an accounting clerk, is planning on resigning on Friday.
B) Linda knows a new receptionist has just been hired.
C) Wendy knows that her firm’s net income is continuing to increase at a steady rate.
D) Tracy knows her employer just received patent approval on a key new product.
E) Maria is the chief financial officer and knows the firm intends to maintain its current dividend
policy.
44) Helen is the chief executive officer of Baker Holdings (BEH). She owns 1.2 million shares of
BEH stock and wishes to sell 10 percent of those shares to diversify her holdings. She follows
the SEC requirements, along with those of her firm, and proceeds with the sale on Monday, June
9. On Tuesday, June 10, BEH stock declines by 25 percent. Helena‘s stock trade is:
A) legal but any future trading in BEH will be prohibited as long as she remains employed by the
firm.
B) illegal and could subject her to both fines and jail time.
C) legal.
D) subject to reversal by the SEC.
E) subject to a forfeiture of her profits to the SEC.
45) Which one of the following statements related to insider trading is correct?
A) Licensed stockbrokers are exempt from insider trading laws.
B) Individuals, such as Martha Stewart, who have been convicted of crimes, can be barred from
being executive officers of publicly-traded companies.
C) Because of the increased speed of information flows and the improved efficiency of the
markets, insider trading laws were abolished in 2006.
D) Martha Stewart was convicted of insider trading and subjected both to a fine and a jail
sentence.
E) An investor who receives advice from an investment advisor is automatically charged with
insider trading when the advisor bases his recommendations on private information.
46) Which one of the following relates to the risk-adjustment problem encountered when testing
market efficiency?
A) ascertaining how historical prices relate to current stock prices
B) determining whether a market reaction was appropriate or overstated
C) correctly determining the correct risk-adjustment procedure
D) determining what undocumented information existed on any particular trading day
E) identifying patterns that occur over time in the pricing of a particular security
47) Which one of the following best describes the current understanding of market efficiency?
A) The market tends to overreact to new information in a manner which can be used to earn
abnormal returns.
B) Markets under-react to unanticipated events in a manner which can be used to earn excess
returns.
C) The market appears to be highly inefficient.
D) Short-term market movements are difficult, if not impossible, to predict accurately.
E) Markets tend to react slowly to unanticipated announcements.
48) If the financial markets are highly efficient, then:
A) investing based on technical analysis is highly recommended.
B) holding a diversified, low-cost, passively-managed portfolio is probably your best investment
strategy.
C) you should adopt an investment strategy based on market timing.
D) having a professional manager who actively trades your portfolio is most likely your best
investment strategy.
E) it doesn’t matter which securities you invest in as all securities will provide relatively equal
returns.
49) If the markets are efficient, then why is asset allocation still considered important?
A) because the risk-return relationship must still be considered
B) because market timing is critical in efficient markets
C) because individual security selection is the key to the markets being efficient
D) because asset allocation combines market timing with individual security selection
E) because the majority of market gains tend to occur only over long periods of time
50) Moving money in and out of the market based on your market expectations is called
________ and tends to lead to returns that are ________ than the overall market return, assuming
that the market is relatively efficient.
A) asset allocation; higher
B) asset allocation; lower
C) market timing; higher
D) market timing; lower
E) security selection; higher
51) Market timing tends to lead to:
A) fairly consistent abnormal returns.
B) increasing profits as experience is gained.
C) superior returns but only if you are a professional money manager.
D) a rate of return roughly equal to that of the overall market.
E) underperforming the overall market.
52) Studies indicate that the Vanguard 500 Index fund tends to:
A) underperform most professional money managers.
B) produce a return equal to that of professional managers.
C) outperform the average professional money manager, but only over the short-term.
D) outperform most professional money managers especially over longer-periods of time.
E) support the argument that the stock market is inefficient.
53) Which one of the following statements is correct?
A) Professional money managers outperformed the Vanguard 500 Index Fund on an annual basis
more than half the time for the period 1986-2014.
B) Purchasing and holding a broad-based index fund is a highly recommended means of
investing.
C) The number of general equity mutual funds has decreased over the past 20 years due to their
underperformance as compared to index funds.
D) The survivorship bias lowers the returns earned by professional money managers as a group.
E) In an efficient market, there is no need for professional money managers.
54) The day-of-the-week effect refers to which trading day?
A) Monday
B) Tuesday
C) Wednesday
D) Thursday
E) Friday
55) Over the past 65 years, which day of the week, on average, has the lowest average rate of
return?
A) Monday
B) Tuesday
C) Wednesday
D) Thursday
E) Friday
56) The January effect:
A) does not occur in the domestic market every year.
B) occurs every year but only for large-company stocks.
C) occurs every year but only for small-company stocks.
D) is unaffected by institutional investors.
E) is unique to the United States.
57) Which of the following are offered as possible causes of the January effect?
I. new professional money managers who assume the role at the beginning of the year
II. tax loss selling in December
III. bonus lock-in effect
IV. window dressing
A) I and II only
B) III and IV only
C) I, III, and IV only
D) II, III, and IV only
E) I, II, III, and IV
58) Market prices tend to ________ earnings “surprises”.
A) adjust quickly and efficiently to
B) overreact and then correct in response to
C) overreact and never correct in response to
D) ignore
E) adjust slowly to
59) Which one of the following statements describes an investment strategy that may lead to
profitable results based on current research findings?
A) selling stocks as soon as positive earnings surprises are announced
B) selling stocks on Mondays only
C) selling small-company stocks in December and repurchasing them in February
D) selling stocks on the 25th of the month and repurchasing them on the 5th of the following
month
E) buying stocks with relatively low P/E ratios
60) Which one of the following statements concerning the stock market is correct?
A) Leverage was one of the contributing factors of the Crash of 1929.
B) “Black Monday” refers to October 29, 1929.
C) Program trading is cited as the sole cause of the Crash of 1987.
D) Generally speaking, market crashes tend to last longer than market bubbles.
E) It took the market 10 years to recover from the Crash of 1987.
61) Over the time period of 1929 to 1932, the stock market lost approximately ________ percent
of its value.
A) 33
B) 40
C) 50
D) 75
E) 90
62) Approximately how many years did it take for the stock market to recover from the bear
market of 1929 to 1932?
A) 5
B) 10
C) 15
D) 20
E) 25
63) Which of the following are offered as factors contributing to the Crash of October 1987?
I. bubble bursting
II. market volatility
III. negative economic signals
IV. activities in Congress
A) I and II only
B) I and III only
C) II, III, and IV only
D) I, II, and III only
E) I, II, III, and IV
64) Which of the following occurred during the Crash of 1987?
I. market prices were kept up-to-date which increased investors’ anxiety
II. the market declined another 5 percent within the 2 days following the crash
III. trading volume exceeded the exchange’s capacities
IV. NASDAQ went off-line
A) I and II only
B) III and IV only
C) I, II and IV only
D) II, III, and IV only
E) I, II, III, and IV
65) Which one of the following occurred following the Crash of 1987?
A) Program trading was barred.
B) All market orders were changed to electronic orders.
C) Trading is now halted for the day anytime the market declines by 10 percent or more.
D) Trading now stops for one hour anytime the market declines by 10 percent.
E) Congress decided not to pass any anti-takeover legislation.
66) Which of the following factors contributed to the Crash of 1987?
I. irrational investors
II. program trading
III. panic selling
IV. price uncertainty
A) II and IV only
B) I, II, and III only
C) I, II, and IV only
D) II, III, and IV only
E) I, II, III, and IV
67) Immediately following the Crash of 1987, the stock market:
A) remained in a slump for five years.
B) remained flat for an extended period of time.
C) had one of the biggest short-term gains ever.
D) began a very slow and choppy recovery.
E) began a very slow and smooth recovery.
68) If the S&P 500 falls by 20 percent, the NYSE will:
A) do nothing if the drop occurs after 2:30 p.m.
B) halt trading for one hour.
C) halt trading for one hour if the decline occurs before 3 p.m.
D) halt trading for one-half hour if the decline occurs after noon.
E) cease trading for the day.
69) If the S&P 500 falls by 7 percent, the NYSE will:
A) halt trading for thirty minutes.
B) halt trading for two hours if the decline occurs before 3:25 p.m.
C) halt trading for one hour.
D) halt trading for one hour if the decline occurs after noon.
E) halt trading for 15 minutes if the decline occurs before 3:25 p.m.
70) The NYSE circuit breakers are recalculated:
A) every day
B) every week
C) monthly
D) every 6 months
E) annually