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Q:
Research on the strong form shows that _______ are able to achieve superior returns.
A.members of the SEC
B.corporate insiders and public officials
C.market specialists and corporate insiders
D.the majority of professional mutual fund managers
Q:
The strong form of the efficient market hypothesis states that:
A.a market is more than highly efficient; it is actually perfect.
B.it is easy to beat the market.
C.mutual fund managers are superior performers.
D.None of the above
Q:
The semistrong form of the efficient market hypothesis maintains all of the following, except that:
A.there is no learning lag in the distribution of public information.
B.all public information is immediately impounded into the value of a security.
C.technical analysis is helpful in determining whether a stock is overvalued or undervalued.
D.fundamental analysis cannot outperform the market.
Q:
Research on the weak form of the efficient market hypothesis suggests that:
A.stock prices are independent over time.
B.past trends cannot be used to predict the future.
C.charting and technical analysis have limited value.
D.More than one of the above
Q:
The _________ of the efficient market hypothesis suggests that there is little or nothing to be gained from studying past stock price trends.
A.weak form
B.semi-strong form
C.strong form
D.semi-weak form
Q:
The weak form of the efficient market hypothesis can be tested by utilizing
A.tests of independence.
B.regression analysis.
C.trading rule tests.
D.A and C
Q:
The basic premise of ________________ is that past trends in market movements can be used to forecast or understand the future.
A.the Efficient Market Hypothesis
B.fundamental analysis
C.technical analysis
D.None of the above
Q:
The week-end effect indicates that stocks tend to ___________ on Friday and ___________ on Monday.
A.decline; peak
B.decline; decline
C.peak; peak
D.peak; decline
Q:
The January upward stock movement effect is often linked to:
A.surprise earnings.
B.tax considerations.
C.early in the year enthusiasm.
D.the neglect effect.
Q:
An unexpected earnings surprise refers to the situation where:
A.announced earnings were in line with analysts' favorable earnings expectations.
B.announced earnings were better or worse than the analysts' forecast number.
C.announced earnings were significantly below last year's earnings.
D.the operating and financial leverage caused earnings to accelerate coming out of the trough of a business cycle.
Q:
Value Line's Ranking System, covering 1,700 companies, has demonstrated:
A.that stocks ranked one under-perform the market.
B.that stocks ranked five perform about at the market average.
C.that stocks ranked one outperform the market.
D.that stocks ranked five outperform the market.
Q:
The study by Fama and French maintains that the lower the ratio of market value to book value, the:
A.more overvalued the stock price.
B.higher the potential return on the stock.
C.higher the expected growth in earnings.
D.lower the expected growth in earnings.
Q:
Studies of the small-firm effect indicate that there may be superior return potential in investing in smaller-capitalization firms, because:
A.the high P/E ratios of many of these firms eventually lead to superior returns.
B.smaller firms have fewer expenses, therefore, making more money for their investors.
C.there is less efficiency in this segment of the market, due to minimal institutional participation.
D.smaller firms are always growing, along with the returns that their investors receive.
Q:
Firms with low P/E ratios that are often neglected by major investors seem to provide:
A.an inferior risk-adjusted return.
B.a superior risk-adjusted return.
C.a superior return, not adjusted for risk, though.
D.No return
Q:
A good reason for a stock repurchase is:
A.that management believes that the stock is undervalued in the market.
B.so the company can escape the threat of a future merger or acquisition.
C.to avoid obligations under an employee stock ownership plan.
D.None of the above
Q:
Prominent research on the small firm effect has been done by:
A.Fama and Roll.
B.Fama and French.
C.French and Roll.
D.Banz and Reinganum.
Q:
Banz's research on the small firm effect was criticized because
A.the stocks were too small.
B.it was highly influenced by a depression and a major war.
C.the stocks were too large.
D.it was highly influenced by inflation and a devaluation of the dollar.
Q:
Which of the following is NOT a reason for the failure of investment in small firms to catch on as an important strategy?
A.There is a lack of institutional investors
B.Information on these smaller firms increases the efficiency of the market
C.Some investors are not properly positioned for the segmented market
D.All of the above are reasons
Q:
The Small Firm Effect is the theory that:
A.firms with small market capitalization outperform the market.
B.small firms have greater market capitalization.
C.transaction costs associated with dealing in larger capitalization firms might severely cut into profit potential.
D.More than one of the above
Q:
What is market capitalization?
A.The total owners' equity in a firm
B.The total marketable assets of a firm
C.Shares outstanding multiplied by the market value of the stock
D.None of the above
Q:
Why does a stock repurchase improve the after-tax position of stockholders over cash dividends?
A.The theoretical increase in value is taxed at the lower capital gains rate
B.Reduced shares outstanding increase earnings per share
C.Cash dividends are taxed as ordinary income
D.All of the above
Q:
A study indicated that what type of stock had the best performance four years after announcement of a stock repurchase?
A.Growth stocks
B.Convertible preferred stocks
C.Low-yield stocks
D.Value-oriented stocks
Q:
Once management announces that it will buy back one million shares over a given time period, as circumstances become appropriate,
A.it is legally obligated to buy all one million shares back.
B.it is not legally obligated to buy any or all one million shares back.
C.it must buy back the number of shares that are equal to income in a given year (up to one million shares).
D.it must buy back the number of shares that are equal to income minus common stock dividends in a given year (up to one million shares).
Q:
One reason a firm may repurchase its own shares is:
A.that management views the firm's future prospects to be bright.
B.to go public.
C.to qualify for an exchange listing.
D.to adhere to SEC requirements on number of shares outstanding.
Q:
All of the following are minimum listing requirements for a New York Stock Exchange listing except:
A.the market value of publicly held shares should be at least $100 million.
B.there should be at least 2,000 round lot holders.
C.there should be at least 1,200 employees.
D.a total of at least 1,100,000 shares should be held publicly.
Q:
When should an investor in OTC stock approved for listing sell the stock, if the objective is to maximize profit?
A.Immediately prior to approval
B.When the approval is published
C.On the date of listing
D.Four to six weeks after the date of listing
Q:
Which of the following is NOT an advantage of listing a stock on an exchange?
A.A market for the stock is maintained by a specialist
B.Minimum size and performance criteria for listing are quite restrictive
C.There is usually a significant increase in stock price upon approval for listing
D.More than one of the above
Q:
Besides management and prior performance, what primary factors should be considered by the investor in a new issue?
A.The intended use of funds from the issue
B.Expected stock price in the secondary market
C.The investment banker handling the distribution
D.More than one of the above
Q:
Studies have shown that the best time to sell an unseasoned issue is:
A.prior to announcement of a merger.
B.shortly after the initial distribution.
C.after one year of trading.
D.More than one of the above
Q:
All of the following are reasons why an investment banker may under-price a new stock issue, except:
A.to stimulate demand for the issue.
B.to reduce unwanted inventory.
C.to insure adequate demand in the secondary market.
D.None of the above
Q:
New stock issues are considered a special investment situation, because
A.they exhibit a very good long-term investment potential.
B.the spread is greater than that in the secondary market.
C.there is some evidence that new issues are under-priced.
D.More than one of the above
Q:
In a merger, a white knight is:
A.a helpful investment banker that makes sure the merger is successful.
B.a third company that buys the acquisition target before an unwanted suitor can.
C.an investor who pays a high price to buy at least 5% of the shares of the acquisition target.
D.a commercial banker that provides a guarantee that the financing for the merger will be available.
Q:
Which of the following is a characteristic of an unfriendly takeover?
A.Usually there is a high premium on stock price
B.An unacceptable suitor attempts to buy out the target company
C.The White Knight may succeed in rescuing the target company
D.All of the above
Q:
An acquisition may be canceled because of any of the following except:
A.antitrust action.
B.an unusually high premium on stock price.
C.a lawsuit brought by stockholders.
D.disapproval of the target company's management.
Q:
The major problem associated with trying to profit from mergers and acquisitions is
A.that contradictory information is available.
B.pinpointing reasons for stock price changes.
C.the threat of cancellation.
D.None of the above
Q:
Legal methods for attempting to profit through mergers and acquisitions include all of the following, except identifying
A.an insider close to the information.
B.candidates through financial or operating characteristics.
C.securities which are undergoing unusual volume or pricing patterns.
D.industries where companies are being absorbed.
Q:
The stock price of an acquisition candidate changes dramatically prior to announcement because of:
A.the candidate's estimated cost of capital.
B.the high premium offered for the stock of the candidate.
C.information leaks.
D.More than one of the above
Q:
From the time prior to announcement until an acquisition takes effect, the value of the stock of the acquiring company will likely:
A.rise sharply.
B.rise sharply, then slowly fall.
C.remain largely unchanged.
D.fall slowly, then rise sharply.
E.None of the above
Q:
"Special or abnormal returns" refer to:
A.the Efficient Market Hypothesis.
B.gains in excess of the market risk-adjusted average.
C.convertibles and warrants, etc.
D.More than one of the above
Q:
To be guilty of insider trading, one must be an officer of the company involved.
Q:
Specialists and mutual fund managers tend to enjoy superior market performance on a risk-adjusted basis.
Q:
Analysts generally are not influenced by accounting changes that have no economic consequences.
Q:
The strong form of the EMH is generally confirmed by research evidence.
Q:
The semi-strong form of the EMH is generally confirmed by research evidence, with some exceptions.
Q:
The weak form of the EMH is generally confirmed by research evidence.
Q:
Acceptance of the weak form of the EMH would indicate that charting can lead to profits.
Q:
The strong form of the efficient market hypothesis suggests that only insiders are able to show superior risk-adjusted returns.
Q:
Under the weak form of the efficient market hypothesis, stock prices are considered to be independent over time.
Q:
OTC stocks may not uphold the semi-strong form of the efficient market hypothesis, while listed stocks generally do.
Q:
Stocks that report unexpected positive earnings surprises seem to provide superior performances relative to the market.
Q:
Value Line Group 5 Stocks tend to have the strongest performance.
Q:
The January Effect refers to the observation that in January small stocks seem to under-perform the market.
Q:
The book value to market value ratio is not as important as the P/E and size effect, according to Professors Fama and French.
Q:
Professors Fama and French maintain that the ratio of book value to market value is more important than either the size effect or the P/E effect in explaining superior stock performance.
Q:
Positive abnormal returns on stocks may represent a measurement error.
Q:
Research indicates that stocks tend to peak in value on Friday and generally decline in value on Monday.
Q:
Of particular interest to stock repurchases is the fact that most of the negative market movement comes on after the announcement, rather than before it.
Q:
The best strategy in a new public offering is often to sell the stock shortly after it becomes public.
Q:
The primary reason for the upward market movement in the value of the acquisition candidate is the low premium that is offered over current market value in a merger or acquisition.
Q:
In the bull market of the 1990s, many firms repurchasing their own shares were among the strongest and most respected companies on Wall Street.
Q:
Institutional investors often take advantage of the small firm effect.
Q:
A stock split has no effect on the retained earnings account.
Q:
A stock split has no effect on the par value of a stock.
Q:
Recent research indicates little opportunity to profit from repurchase situations.
Q:
The delisting of a stock from the New York Stock Exchange tends to have a neutral effect on the stock on the last day of trading. However, the stock normally has downward movement approximately six months later.
Q:
The requirements for an exchange listing tend to be highly restrictive.
Q:
The study by Barry and Jennings of new stock issues indicates that 90% of the gain occurs in the opening transaction.
Q:
An investor in a new issue should be somewhat skeptical when the new funds are being used to buy out old stockholders or to acquire property from existing stockholders.
Q:
An investment banker overprices an issue in order to satisfy the corporate issuer.
Q:
Large, prestigious investment banking houses generally provide lower initial returns to investors on new issues underwritten.
Q:
To take maximum advantage of new issues, an investor should own a stock for at least one year.
Q:
After-market performance refers to the price experiences of new issues immediately after going public.
Q:
Most companies attempt to avoid the effects of synergy in putting a merger or acquisition together.
Q:
When a merger becomes relatively certain, arbitrageurs come in and attempt to lock in profits.
Q:
Results of research studies make it easy to identify characteristics of potential acquisition candidates.
Q:
In a leveraged buyout, the company's balance sheet serves as a collateral base to make the borrowing possible.
Q:
There is a good opportunity to achieve abnormal gains by investing in either the acquiring company's or acquired company's stock.
Q:
The stock of acquiring companies often increases by 60% or more as a result of a merger.
Q:
Abnormal returns refer to gains beyond what the market would normally provide after adjustment for risk.
Q:
The Small Firm Effect asserts that there is a positive correlation between market capitalization and risk-adjusted returns.