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43) Which one of the following is the most likely reason why a stock price might not react at all
on the day that new information related to the stock's issuer is released? Assume the market is
semistrong form efficient.
A) Company insiders were aware of the information prior to the announcement.
B) Investors do not pay attention to daily news.
C) Investors tend to overreact.
D) The news was positive.
E) The information was expected.
44) Which one of the following is most indicative of a totally efficient stock market?
A) Extraordinary returns earned on a routine basis
B) Positive net present values on stock investments over the long-term
C) Zero net present values for all stock investments
D) Arbitrage opportunities which develop on a routine basis
E) Realizing negative returns on a routine basis
45) Which one of the following statements is correct concerning market efficiency?
A) Real asset markets are more efficient than financial markets.
B) If a market is efficient, arbitrage opportunities should be common.
C) In an efficient market, some market participants will have an advantage over others.
D) A firm will generally receive a fair price when it issues new shares of stock if the market is
efficient.
E) New information will gradually be reflected in a stock's price to avoid any sudden price
changes in an efficient market.
46) Efficient financial markets fluctuate continuously because:
A) the markets are continually reacting to old information as that information is absorbed.
B) the markets are continually reacting to new information.
C) arbitrage trading is limited.
D) current trading systems require human intervention.
E) investments produce varying levels of net present values.
47) Inside information has the least value when financial markets are:
A) weak form efficient.
B) semiweak form efficient.
C) semistrong form efficient.
D) strong form efficient.
E) inefficient.
48) Evidence seems to support the view that studying public information to identify mispriced
stocks is:
A) effective as long as the market is only semistrong form efficient.
B) effective provided the market is only weak form efficient.
C) ineffective.
D) effective only in strong form efficient markets.
E) ineffective only in strong form efficient markets.
49) Which one of the following statements related to market efficiency tends to be supported by
current evidence?
A) It is easy for investors to earn abnormal returns.
B) Short-run price movements are easy to predict.
C) Markets are most likely only weak form efficient.
D) Mispriced stocks are easy to identify.
E) Markets tend to respond quickly to new information.
50) Which form of market efficiency would most likely offer the greatest profit potential to an
outstanding professional stock analyst?
A) Weak
B) Semiweak
C) Semistrong
D) Strong
E) Perfect
51) You are aware that your neighbor trades stocks based on confidential information he
overhears at his workplace. This information is not available to the general public. This neighbor
continually brags to you about the profits he earns on these trades. Given this, you would tend to
argue that the financial markets are at best ________ form efficient.
A) weak
B) semiweak
C) semistrong
D) strong
E) perfect
52) The U.S. Securities and Exchange Commission periodically charges individuals with insider
trading and claims those individuals have made unfair profits. Given this, you would be most apt
to argue that the markets are less than ________ form efficient.
A) weak
B) semiweak
C) semistrong
D) strong
E) perfect
53) Individual investors who continually monitor the financial markets seeking mispriced
securities:
A) earn excess profits on all of their investments.
B) make the markets increasingly more efficient.
C) are never able to find a security that is temporarily mispriced.
D) are overwhelmingly successful in earning abnormal profits.
E) are always quite successful using only historical price information as their basis of evaluation.
54) One year ago, you purchased a stock at a price of $43.20 per share. The stock pays quarterly
dividends of $.18 per share. Today, the stock is selling for $45.36 per share. What is your capital
gain on this investment?
A) $1.44
B) $2.16
C) $2.80
D) $1.74
E) $2.34
55) Six months ago, you purchased 300 shares of stock in Global Trading at a price of $26.19 a
share. The stock pays a quarterly dividend of $.12 a share. Today, you sold all of your shares for
$27.11 per share. What is the total amount of your dividend income on this investment?
A) $36
B) $72
C) $348
D) $144
E) $204
56) One year ago, you purchased 200 shares of SL Industries stock at a price of $18.97 a share.
The stock pays an annual dividend of $1.42 per share. Today, you sold all of your shares for
$17.86 per share. What is your total dollar return on this investment?
A) $50
B) $91
C) $58
D) $62
E) $82
57) You own 850 shares of Western Feed Mills stock valued at $53.15 per share. What is the
dividend yield if your total annual dividend income is $1,256?
A) 2.67 percent
B) 2.78 percent
C) 1.83 percent
D) 2.13 percent
E) 2.54 percent
58) West Wind Tours stock is currently selling for $52.30 a share. The stock has a dividend yield
of 2.48 percent. How much dividend income will you receive per year if you purchase 600 shares
of this stock?
A) $824.96
B) $836.20
C) $724.80
D) $762.00
E) $778.22
59) One year ago, you purchased a stock at a price of $38.22 a share. Today, you sold the stock
and realized a total loss of 11.09 percent on your investment. Your capital gain was –$4.68 a
share. What was your dividend yield?
A) 1.15 percent
B) .88 percent
C) 1.02 percent
D) .67 percent
E) .38 percent
60) You just sold 427 shares of stock at a price of $19.07 a share. You purchased the stock for
$18.83 a share and have received total dividends of $614. What is the total capital gain on this
investment?
A) $716.48
B) $511.52
C) $102.48
D) $618.48
E) $476.52
61) Last year, you purchased 400 shares of Analog stock for $12.92 a share. You have received a
total of $136 in dividends and $4,301 in proceeds from selling the shares. What is your capital
gains yield on this stock?
A) 9.09 percent
B) 6.73 percent
C) −16.78 percent
D) −14.14 percent
E) −11.02 percent
62) Today, you sold 540 shares of stock and realized a total return of 7.3 percent. You purchased
the shares one year ago at a price of $24 a share and have received a total of $86 in dividends.
What is your capital gains yield on this investment?
A) 5.68 percent
B) 6.64 percent
C) 6.39 percent
D) 7.26 percent
E) 7.41 percent
63) Four months ago, you purchased 900 shares of LBM stock for $7.68 a share. Last month,
you received a dividend payment of $.12 a share. Today, you sold the shares for $9.13 a share.
What is your total dollar return on this investment?
A) $1,305
B) $1,413
C) $1,512
D) $1,394
E) $1,080
64) One year ago, you purchased 100 shares of Best Wings stock at a price of $38.19 a share.
The company pays an annual dividend of $.46 per share. Today, you sold for the shares for
$37.92 a share. What is your total percentage return on this investment?
A) 2.62 percent
B) 1.93 percent
C) 2.72 percent
D) 1.08 percent
E) .50 percent
65) Suppose a stock had an initial price of $76 per share, paid a dividend of $1.42 per share
during the year, and had an ending share price of $81. What was the capital gains yield?
A) 6.17 percent
B) 6.69 percent
C) 7.05 percent
D) 6.58 percent
E) 5.44 percent
66) Suppose you bought a $1,000 face value bond with a coupon rate of 5.6 percent one year
ago. The purchase price was $987.50. You sold the bond today for $994.20. If the inflation rate
last year was 2.6 percent, what was your exact real rate of return on this investment?
A) 4.88 percent
B) 5.32 percent
C) 3.65 percent
D) 3.78 percent
E) 4.47 percent
67) Leo purchased a stock for $63.80 a share, received a dividend of $2.68 a share and sold the
shares for $59.74 each. During the time he owned the stock, inflation averaged 2.8 percent. What
is his approximate real rate of return on this investment?
A) −.64 percent
B) −4.96 percent
C) −2.16 percent
D) 2.16 percent
E) 4.96 percent
68) Christina purchased 500 shares of stock at a price of $62.30 a share and sold the shares for
$64.25 each. She also received $738 in dividends. If the inflation rate was 3.9 percent, what was
her exact real rate of return on this investment?
A) 4.20 percent
B) 1.54 percent
C) 1.60 percent
D) 3.95 percent
E) 5.50 percent
69) What is the amount of the risk premium on a U.S. Treasury bill if the risk-free rate is 3.1
percent, the inflation rate is 2.6 percent, and the market rate of return is 7.4 percent?
A) 0 percent
B) 2.8 percent
C) .5 percent
D) 1.7 percent
E) 4.3 percent
70) You've observed the following returns on Crash-n-Burn Computer's stock over the past five
years: 7 percent, 13 percent, 19 percent, −8 percent, and 15 percent. Suppose the average
inflation rate over this time period was 2.6 percent and the average T-bill rate was 3.1 percent.
Based on this information, what was the average nominal risk premium?
A) 6.6 percent
B) 6.1 percent
C) 9.2 percent
D) 1.2 percent
E) 3.5 percent
71) You bought one of Shark Repellant's 6 percent coupon bonds one year ago for $867. These
bonds pay annual payments, have a face value of $1,000, and mature 12 years from now.
Suppose you decide to sell your bonds today when the required return on the bonds is 7.4
percent. The inflation rate over the past year was 2.9 percent. What was your total real return on
this investment?
A) 6.48 percent
B) 6.61 percent
C) 8.18 percent
D) 7.44 percent
E) 9.70 percent
