FIN 300 Final Exam Conceptual Questions and correct
answers
Last year, T-bills returned 2 percent while your investment in large-company stocks earned an
average of 5 percent. Which one of the following terms refers to the difference between these two
rates of return? - CORRECT ANSWERS-Risk premium
The average compound return earned per year over a multi-year period is called the _____ average
return. - CORRECT ANSWERS-Geometric
The return earned in an average year over a multi-year period is called the _____ average return. -
CORRECT ANSWERS-Arithmetic
Assume that the market prices of the securities that trade in a particular market fairly reflect the
available information related to those securities. Which one of the following terms best defines that
market? - CORRECT ANSWERS-Efficient capital market
Which two of the following are the most likely reasons why a stock price might not react at all on the
day that new information related to the stock issuer is released?
I. insiders knew the information prior to the announcement
II. investors need time to digest the information prior to reacting
III. the information has no bearing on the value of the firm
IV. the information was anticipated - CORRECT ANSWERS-III. the information has no bearing on the
value of the firm
IV. the information was anticipated
Efficient financial markets fluctuate continuously because: - CORRECT ANSWERS-the markets are
continually reacting to new information.
, Inside information has the least value when financial markets are: - CORRECT ANSWERS-strong and
efficient
According to theory, studying historical stock price movements to identify mispriced stocks: - CORRECT
ANSWERS-is ineffective even when the market is only weak form efficient.
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. - CORRECT ANSWERS-strong
Most people would readily agree that the stock market is not _________. - CORRECT ANSWERS-strong-
form efficient
Which version of the efficient market hypothesis focuses on the most inclusive set of information? -
CORRECT ANSWERS-strong-form
(Strong-form efficiency includes all information: historical, public, and private.)
The beta of a risk-free asset, i.e., a U. S. Treasury bill, is: - CORRECT ANSWERS-zero
The beta of the market is - CORRECT ANSWERS-1.0
Which one of the following is a positively sloped linear function that is created when expected returns
are graphed against security betas? - CORRECT ANSWERS-security market line
Which one of the following is represented by the slope of the security market line? - CORRECT
ANSWERS-market risk premium
answers
Last year, T-bills returned 2 percent while your investment in large-company stocks earned an
average of 5 percent. Which one of the following terms refers to the difference between these two
rates of return? - CORRECT ANSWERS-Risk premium
The average compound return earned per year over a multi-year period is called the _____ average
return. - CORRECT ANSWERS-Geometric
The return earned in an average year over a multi-year period is called the _____ average return. -
CORRECT ANSWERS-Arithmetic
Assume that the market prices of the securities that trade in a particular market fairly reflect the
available information related to those securities. Which one of the following terms best defines that
market? - CORRECT ANSWERS-Efficient capital market
Which two of the following are the most likely reasons why a stock price might not react at all on the
day that new information related to the stock issuer is released?
I. insiders knew the information prior to the announcement
II. investors need time to digest the information prior to reacting
III. the information has no bearing on the value of the firm
IV. the information was anticipated - CORRECT ANSWERS-III. the information has no bearing on the
value of the firm
IV. the information was anticipated
Efficient financial markets fluctuate continuously because: - CORRECT ANSWERS-the markets are
continually reacting to new information.
, Inside information has the least value when financial markets are: - CORRECT ANSWERS-strong and
efficient
According to theory, studying historical stock price movements to identify mispriced stocks: - CORRECT
ANSWERS-is ineffective even when the market is only weak form efficient.
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. - CORRECT ANSWERS-strong
Most people would readily agree that the stock market is not _________. - CORRECT ANSWERS-strong-
form efficient
Which version of the efficient market hypothesis focuses on the most inclusive set of information? -
CORRECT ANSWERS-strong-form
(Strong-form efficiency includes all information: historical, public, and private.)
The beta of a risk-free asset, i.e., a U. S. Treasury bill, is: - CORRECT ANSWERS-zero
The beta of the market is - CORRECT ANSWERS-1.0
Which one of the following is a positively sloped linear function that is created when expected returns
are graphed against security betas? - CORRECT ANSWERS-security market line
Which one of the following is represented by the slope of the security market line? - CORRECT
ANSWERS-market risk premium
