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Suppose that interest rates unexpectedly rise and that FineLine Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down.According to the efficient markets hypothesis,which of the these things make the price of FineLine Corporation Stock fall?


A) both the interest rate rising and the revenue announcement
B) neither the interest rate rising nor the revenue announcement
C) only the interest rate rising
D) only the revenue announcement

E) A) and C)
F) C) and D)

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When a person engages in detailed analysis of a company to determine its value,he or she is engaging in


A) standard deviation analysis.
B) informational analysis.
C) fundamental analysis.
D) efficiency analysis.

E) A) and B)
F) A) and D)

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The performance of index funds


A) usually falls short of the performance of actively-managed funds.
B) provides evidence in support of the notion that stock prices do not depend upon supply and demand.
C) provides evidence in support of the efficient markets hypothesis.
D) provides evidence in support of the notion that stock-market participants are irrational.

E) A) and B)
F) All of the above

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During a financial crisis the possibility of bank failures rises.An increase in the likelihood of a bank failing shifts demand for its stock


A) right,so the price rises.
B) right,so the price falls.
C) left,so the price rises.
D) left,so the price falls.

E) A) and D)
F) C) and D)

Correct Answer

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Which of the following is correct?


A) Risk-averse people will not hold stock.
B) Diversification cannot reduce firm-specific risk.
C) The larger the percentage of stock in a portfolio,the greater the risk,but the greater the average return.
D) Stock prices are determined by fundamental analysis rather than by supply and demand.

E) All of the above
F) A) and B)

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Suppose fundamental analysis indicates that XYZ Corporation's stock is undervalued.


A) This means its present value is less than its price.You should consider adding the stock to your portfolio.
B) This means its present value is less than its price.You shouldn't consider adding the stock to your portfolio.
C) This means its present value is more than its price.You should consider adding the stock to your portfolio.
D) This means its present value is more than its price.You shouldn't consider adding the stock to your portfolio.

E) A) and C)
F) A) and B)

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A pharmaceutical company unexpectedly announces that it just developed an important new drug.This news should


A) raise the price of the corporation's stock;if it does not the stock is overvalued.
B) raise the price of the corporation's stock;if it does not the stock is undervalued.
C) reduce the price of the corporation's stock;if it does not the stock is overvalued.
D) reduce the price of the corporation's stock;if it does not the stock is undervalued.

E) All of the above
F) C) and D)

Correct Answer

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The efficient markets hypothesis implies that


A) building a portfolio based on a published list of the "most respected" companies is likely to produce a better-than-average return.
B) if a stock rose in price last year,it is likely to rise in price this year.
C) managed mutual funds should generally outperform indexed mutual funds.
D) None of the above are correct.

E) A) and D)
F) All of the above

Correct Answer

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Writing in The Wall Street Journal in 2009,economist Jeremy Siegel pointed out that the efficient markets hypothesis


A) was responsible for the financial crisis of 2008-2009.
B) was responsible for the Great Depression of the 1930s.
C) claims that prices observed in financial markets are always "right."
D) claims that prices observed in financial markets are mostly "wrong."

E) A) and B)
F) B) and D)

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Diversification


A) increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher.
B) increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower.
C) reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher.
D) reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower.

E) A) and B)
F) All of the above

Correct Answer

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