Chapter 15 - Financial markets

A stock market is 'efficient' if:
1. It deals with transactions quickly
2. Share prices respond rapidly and appropriately to new information
3. Shares are priced at their real economic value
4. There is no other way of dealing in shares
In an efficient stock market, if a company makes an investment decision with a positive NPV of £5m this will
1. Have no effect on share prices
2. Lead to an immediate increase in share prices adding up to £5m
3. Only effect share prices when increased dividends are paid
4. Lead to an increase in share prices when cash flows start to come in from the investment
If the only way to identify mispriced shares is to have access to inside information the market would be
1. Inefficient in the weak form
2. Inefficient in the semi-strong form
3. Inefficient in the strong form
4. Totally efficient
For technical analysis to be worthwhile markets must be:
1. Inefficient in the weak form
2. Inefficient in the semi-strong form
3. Inefficient in the strong form
4. Totally efficient
Which of the following is NOT suggested by empirical tests of EMH?
1. Markets are more or less efficient in the weak form
2. There are few exploitable semi-strong form inefficiencies
3. Markets are more or less efficient in the strong form
4. It is impossible to beat the market without inside information
A bond is priced at £105 by the market. It will be redeemed at £100 in two years time and carries a coupon of 7%. Its yield to maturity is:
1. 4.3%
2. 5%
3. 7%
4. 7.8%
Which of the following does not cause problems for the pure expectations hypothesis?
1. Taxes
2. Transaction costs
3. Uncertainty regarding the future
4. Different people have different expectations
The implication of financial markets being as semi-strong form efficient as the evidence suggests is
1. Nobody will be able to gain from analysing information about companies
2. Share prices will respond to company decisions as soon as they are transmitted to the market
3. No managed funds will outperform the market
4. Hunches cannot beat the market, even in the short term
The behavioural view of financial markets suggests that
1. It is not possible to beat the market
2. Inside information will be needed to beat the market
3. It might be possible to beat the market by predicting how investors are likely to respond to events
4. All investors are rational
The normal yield curve slopes upwards because of
1. The Fisher Effect
2. The Pure Expecations Hypothesis
3. Uncertainty regarding the future
4. The liquidity preferences of investors and borrowers

Chapter 15 - Financial markets

Quiz