FIN 501 - FINAL (LATEST UPDATE) REAL QUESTIONS AND
VERIFIED ANSWERS |100% CORRECT | ALREADY GRADED
A
Bond rating Ans✓✓✓Letter grades that designate investment quality
and are assigned to a bond issue by rating agencies. Best-know rating
agencies are Moody's, standard & poor's and fitch.
Random walk Hypothesis Ans✓✓✓The theory that stock price
movements are unpredictable, so there's no way to know where prices
are headed.
Efficient market hypothesis (EMH) Ans✓✓✓Basic theory of the
behavior of efficient markets, in which there are large number of
knowledgeable investors who react quickly to new information, causing
securities prices to adjust quickly and accurately.
Market anomalies Ans✓✓✓Irregularities or deviations from the
behaviour one would expect in an efficient market. Four effects:
Calendar effect, small-firm effect, post earning announcement drift (or
momentum), and value effect.
Weak form (EMH) Ans✓✓✓A form of the EMH. Holding that past data
on stock prices are no use in predicting future prices. Prices follow
random walk.
Semi-strong form (EMH) Ans✓✓✓A form of the EMH. Holding that
abnormally large profits cannot be consistently earned using publicly
,available information. Stock prices will adjust to news before you can
trade the stock.
Strong form (EMH) Ans✓✓✓Form of the EMH that holds that there is
no information, public or private, that allows investors to consistently
earn abnormal profits. Insider trading.
Arbitrage Ans✓✓✓A transaction in which an investor simultaneously
buys and sells identical assets at different prices to earn an instant, risk-
free profit.
Calendar effect Ans✓✓✓A form of market anomalies. Stock returns
may be closely tied to the time of the year or time of the week.
January effect Ans✓✓✓Tendency for small-cap stocks to outperform
large stocks by an unusually wide margin.
Small-firm effect Ans✓✓✓A form of market anomalies. Small firms
tend to earn positive abnormal returns of as much as 5% to 6% per year.
Post earnings announcement drift (or momentum): Ans✓✓✓A form of
market anomalies. Another market anomaly has to do with how stock
prices react to earnings announcements. Stock prices that are gone up
will keep going up and vice versa.
, Value effect Ans✓✓✓A form of market anomalies. Best way to make
money in the market is to buy stocks that have relatively low prices
relative to some measure of fundamental value such as book value or
earnings.
Behavioral finance Ans✓✓✓The body of research into the role that
emotions and other subjective factors play in investment decisions.
Some behaviour factors are: overconfidence, self-attribution bias, loss
aversion, representativeness, narrow framing, belief perseverance,
anchoring and familiarity bias.
Overconfidence Ans✓✓✓The tendency to overestimate one's ability to
perform a particular task.
Self-attribution bias Ans✓✓✓The tendency to overestimate the role that
one's intelligence or skill plays in brining about a favourable investment
result and to underestimate the role of chance in that result.
Loss aversion Ans✓✓✓A situation in which the desire to avoid losses is
so great that investors who are otherwise risk-averse will exhibit risk-
seeking behavior in an attempt to avoid a loss.
Representativeness Ans✓✓✓Cognitive biases that occur because people
have difficult thinking about randomness in outcomes.
VERIFIED ANSWERS |100% CORRECT | ALREADY GRADED
A
Bond rating Ans✓✓✓Letter grades that designate investment quality
and are assigned to a bond issue by rating agencies. Best-know rating
agencies are Moody's, standard & poor's and fitch.
Random walk Hypothesis Ans✓✓✓The theory that stock price
movements are unpredictable, so there's no way to know where prices
are headed.
Efficient market hypothesis (EMH) Ans✓✓✓Basic theory of the
behavior of efficient markets, in which there are large number of
knowledgeable investors who react quickly to new information, causing
securities prices to adjust quickly and accurately.
Market anomalies Ans✓✓✓Irregularities or deviations from the
behaviour one would expect in an efficient market. Four effects:
Calendar effect, small-firm effect, post earning announcement drift (or
momentum), and value effect.
Weak form (EMH) Ans✓✓✓A form of the EMH. Holding that past data
on stock prices are no use in predicting future prices. Prices follow
random walk.
Semi-strong form (EMH) Ans✓✓✓A form of the EMH. Holding that
abnormally large profits cannot be consistently earned using publicly
,available information. Stock prices will adjust to news before you can
trade the stock.
Strong form (EMH) Ans✓✓✓Form of the EMH that holds that there is
no information, public or private, that allows investors to consistently
earn abnormal profits. Insider trading.
Arbitrage Ans✓✓✓A transaction in which an investor simultaneously
buys and sells identical assets at different prices to earn an instant, risk-
free profit.
Calendar effect Ans✓✓✓A form of market anomalies. Stock returns
may be closely tied to the time of the year or time of the week.
January effect Ans✓✓✓Tendency for small-cap stocks to outperform
large stocks by an unusually wide margin.
Small-firm effect Ans✓✓✓A form of market anomalies. Small firms
tend to earn positive abnormal returns of as much as 5% to 6% per year.
Post earnings announcement drift (or momentum): Ans✓✓✓A form of
market anomalies. Another market anomaly has to do with how stock
prices react to earnings announcements. Stock prices that are gone up
will keep going up and vice versa.
, Value effect Ans✓✓✓A form of market anomalies. Best way to make
money in the market is to buy stocks that have relatively low prices
relative to some measure of fundamental value such as book value or
earnings.
Behavioral finance Ans✓✓✓The body of research into the role that
emotions and other subjective factors play in investment decisions.
Some behaviour factors are: overconfidence, self-attribution bias, loss
aversion, representativeness, narrow framing, belief perseverance,
anchoring and familiarity bias.
Overconfidence Ans✓✓✓The tendency to overestimate one's ability to
perform a particular task.
Self-attribution bias Ans✓✓✓The tendency to overestimate the role that
one's intelligence or skill plays in brining about a favourable investment
result and to underestimate the role of chance in that result.
Loss aversion Ans✓✓✓A situation in which the desire to avoid losses is
so great that investors who are otherwise risk-averse will exhibit risk-
seeking behavior in an attempt to avoid a loss.
Representativeness Ans✓✓✓Cognitive biases that occur because people
have difficult thinking about randomness in outcomes.
