134A07Final - key

134A07Final - key - 1. Which of the following is evidence...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1. Which of the following is evidence that the market is not semi-strong form efficient? I. Google announces its highest-ever quarterly profits, but its stock price drops 5% immediately. ( The market could have been expecting higher profits. This, in fact, just happened recently.) II. A hedge fund had returns of 150% last year, while the industry average was a mere 15%. (The EMH doesn’t imply no one can make superior returns. It means they cannot consistently earn superior returns.) III. Two finance professors find evidence that when a stock price has increased for six months, it will likely continue to increase for another month. (This would violate the weak-form and therefore the semi-strong form of the EMH.) a. I b. II c. III d. I and III e. I, II, and III 2. Suppose markets are weak-form efficient. If so, one could expect to earn superior returns by I. Looking for trends in stock prices II. Looking at companies’ quarterly earnings statements III. Using information about upcoming corporate mergers that has not yet been made public In weak-form efficient markets, one cannot expect to earn superior returns on past stock prices, implying that all other information CAN be used to earn superior returns. a. I b. II c. III d. I and III e. II and III 3. A firm has a debt-to-equity ratio of 1. Its cost of equity is 16%, and its cost of debt is 8%. If there are no taxes or other imperfections, what would be its cost of equity if the debt-to-equity ratio were 0?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

134A07Final - key - 1. Which of the following is evidence...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online