150. Under what circumstances might it be a good idea to require people to put their retirement savings into defined benefit plans as opposed to letting people choose their own retirement options?

C. if people tend to be overconfident in their own abilities

B.if the stock market follows a random walk

153. Fundamental analysis determines the value of a stock based on

B.the expected final sale price.

C. the ability of the corporation to earn profits.

154. Manufacturers of Weightbegone are concerned that genetic advances in weight control might reduce the demand for their diet snacks. This is an example of

A.idiosyncratic risk, which will likely raise shareholders demand for higher return.

B.idiosyncratic risk, which will likely not likely raise shareholders demand for higher return.

C. aggregate risk, which will likely raise shareholders demand for higher return.

D.aggregate risk, which will likely not raise shareholders demand for higher return.

155. Diversification reduces

C. neither aggregate or idiosyncratic risk.

D.both aggregate and idiosyncratic risk.

156. Which of the flowing is correct?

C. The larger the percentage of stock in a portfolio, the greater the risk, but the greater the average return.

A.Risk-averse people will not hold stock.

B.Diversification cannot reduce idiosyncratic risk.

D.Stock prices are determined by fundamental analysis rather than supply and demand.

157. There are many concerns for risk-averse lenders. Consider the following: 1. Lenders are concerned that borrowers with the greatest risk are the ones most likely to actively pursue loans. 2. Lenders are concerned that real GDP will decline leading to reduced corporate profits. 3. Lenders are concerned that products produced by certain corporations will become obsolete.

B.2 is aggregate risk; 3 is idiosyncratic risk

A.1 is aggregate risk; 2 is idiosyncratic risk

C. 3 is aggregate risk; 1 is idiosyncratic risk

D.2 is idiosyncratic risk; 3 is aggregate risk

158. Which of the following is a source of aggregate risk?

B.Real GDP varies over time and sales and profits move with real GDP.

A.Holding stocks in many companies carries the risk of a reduced average return.

C. When a paper producer has declining sales, it is likely that other paper producers will too.

D.If stockholders become aggravated with the way a CEO runs the company, the stock price may fall.

159. The efficient markets hypothesis says that

B.it should be difficult to find stocks that are not correctly valued.

A.individual investors with no insider information can make no money in the stock market.

C. stock prices do not follow a random walk.

160. According to the efficient market hypothesis, which of the following is incorrect?

A.Stock market prices tend to rise today if they rose yesterday.

B.As judged by the typical person in the market, all stocks are fairly valued all the time.

C. At the market price, the number of shares being offered for sale matches the number of shares people want to buy.

D.All of the above are incorrect.

161. According to the efficient markets hypothesis, better than expected news about a corporation will

B.raise the price of the stock.

A.have no effect on it’s stock price.

C. lower the price of the stock.

D.change the price of the stock in a random direction.

162. Statistical studies have shown that

A.the correlation between how well a stock does one year and how well it does the next is close to zero.

B.managed funds generally outperform indexed funds.

C. households that actively traded stock had a higher average return than households that traded infrequently.

D.All of the above are correct.

163. Which of the following is not consistent with the efficient market hypothesis?

B.Managed funds should consistently outperform indexed funds.

A.Stock prices should follow a random walk.

C. The only thing that affects the price of a stock are unpredictable events.

D.There is little point in spending many hours studying the business pages looking for undervalued stocks.

B.holds all the stocks in a given stock index.

A.holds only stocks and bonds that are indexed to inflation .

C. guarantees a return that follows the index of leading economic indicators.

D.typically does not have as high a rate of return as a managed funD.

168. Which of the following is correct?

D.Index funds typically have a higher rate of return than managed funds. This tends to support the efficient market hypothesis.

A.Managed funds typically have a higher return than indexed funds. This tends to refute the efficient market hypothesis.

B.Managed funds typically have a higher return than indexed funds. This tends to support the efficient market hypothesis.

C. Index funds typically have a higher rate of return than managed funds. This tends to refute the efficient market hypothesis.

169. Brad Barber and Terrance Odean found that households that traded stock frequently tended to get a

C. lower return on their investment than households who did not. This supports the efficient market hypothesis.

A.higher return on their investment than households who did not. This supports the efficient market hypothesis.

B.higher return on their investment than households who did not. This refutes the efficient market hypothesis.

D.lower return on their investment than households who did not. This refutes the efficient market hypothesis.

171. Which of the following is not correct?

D.If you had information about a corporation that no one else did, you could earn a very high rate of return. This contradicts the efficient market hypothesis.

A.There is a greater reduction in risk by increasing the number of stocks in a portfolio from 1 to 10, than by increasing it from 100 to 120 stocks.

B.The historical rate of return on stocks has been a bit more than 5 percentage points higher than the historical rate of return on bonds.

C. Stock in an industry that is very sensitive to economic conditions is likely to have a higher average return than stock in an industry that is not so sensitive to economic conditions.

Chapter 27 (B)

Authored by Hằng Nguyễn

Education

University

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MULTIPLE CHOICE QUESTION

2 mins • 1 pt

143. David increases the number of companies in which he holds stocks.

A.This reduces risk’s standard deviation and idiosyncratic risk.

B.This reduces risk’s standard deviation and aggregate risk.

C. This raises aggregate risk, but lowers idiosyncratic risk. What happens to overall risk is unclear.

D.This raises idiosyncratic risk, but lowers aggregate risk. What happens to overall risk is unclear.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

144. Dakota rearranges her portfolio so that it has a higher average return. In doing this rearranging, she

A.raised both idiosyncratic risk and aggregate risk.

B.raised idiosyncratic risk, but not aggregate risk.

C. raised aggregate risk, but not idiosyncratic risk.

D.None of the above are correct.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

145. Marcus puts a greater proportion of his portfolio into government bonds. This

A.increases both risk and the average rate of return

B.decreases both risk and the average rate of return

C. increases risk, but decreases the average rate of return

D.decreases risk, but increases the average rate of return

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

146. Fundamental analysis shows that stock in BN Corporation has a present value that is higher than its price.

A.This stock is overvalued; you should consider adding it to your portfolio.

B.This stock is overvalued; you shouldn’t consider adding it to your portfolio.

C. This stock is undervalued; you should consider adding it to your portfolio.

D.This stock is undervalued; you shouldn’t consider adding it to your portfolio.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

147. Dividends are

A.the rates of return on different portfolios.

B.cash payments that companies make to shareholders.

C. the value of stocks.

D.measures of the value of companies’ capital.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

148. If stock prices follow a random walk, it means that, based on publicly available information, changes in stock prices

A.are impossible to consistently predict.

B.can be consistently predicted by fundamental analysis.

C. are random and never reflect fundamentals such as dividend payments, demand for the firm’s product, and the like.

D.are irrational.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

149. Psychologists say that some people, especially men, suffer from “self-serving attribution bias.” This means that

A.men are less risk averse than women. As a result, men’s actions may help reduce fluctuations in the stock market.

B.men are more risk averse than women. As a result, men’s actions may increase fluctuations in the stock market.

C. men are more likely than women to think that their success is the result of their own skill rather than luck. As a result, men’s actions may contribute to speculative bubbles.

D.men are more likely than women to think that their success is the result of their own skill rather than luck. As a result, men’s actions may counteract speculative bubbles.

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Chapter 27 (B)

143. David increases the number of companies in which he holds stocks.

144. Dakota rearranges her portfolio so that it has a higher average return. In doing this rearranging, she

145. Marcus puts a greater proportion of his portfolio into government bonds. This

146. Fundamental analysis shows that stock in BN Corporation has a present value that is higher than its price.

147. Dividends are

148. If stock prices follow a random walk, it means that, based on publicly available information, changes in stock prices

149. Psychologists say that some people, especially men, suffer from “self-serving attribution bias.” This means that

150. Under what circumstances might it be a good idea to require people to put their retirement savings into defined benefit plans as opposed to letting people choose their own retirement options?

151. Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.

152. Fundamental analysis shows that stock in Peapod Vegetarian Restaurants has a present value below its price.

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