Chapter 12-Study Guide - Chapter 12 MARKET EFFICIENCY 1 The...

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Chapter Twelve Market Efficiency 148 Chapter 12 MARKET EFFICIENCY 1. The central issue of efficient markets concerns: a. regulations b. information c. participants d. structure (b) 2. An efficient market is defined as one in which: a. all participants have the same opportunity to make the make the same returns. b. all participants have the same legal rights and transactions costs. c. securities’ prices quickly and fully reflect all available information. d. securities’ prices are completely in line with the intrinsic value. (c) 3. All “known” information means: a. past information only. b. past and current information. c. past, current, and inferred information. d. past, current, inferred and relative information. (c) 4. What is the result of the widespread usage of the Internet with regards to efficient markets? a. It makes information cheaper and more accessible thus making markets more efficient. b. It is subject to new regulation thus marking markets less efficient. c. It increases the volatility of security prices thus making markets less efficient. d. It increases competition among brokers thus making markets more efficient. (a)
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Chapter Twelve Market Efficiency 149 5. If a market is inefficient, as new information is received about a security: a. nothing will happen. b. the stock price will fall at first and then later rise. c. there will be a lag in the adjustment of the stock price d. there will be negative demand for the stock. (c) 6. All of the following conditions must occur for a market to be considered efficient except: a. Information is costless and widely available to market participants at approximately the same time. b. Information is generated in a specific fashion such that announcements are basically dependent of each other. c. There are a large number of rational, profit-maximizing investors who actively participate in the market. d. Investors react quickly and fully to the new information, causing stock prices to adjust accordingly. (b)
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Chapter 12-Study Guide - Chapter 12 MARKET EFFICIENCY 1 The...

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