All of the following statements about stock price are correct EXCEPTIn the short run (i.e., a static viewpoint), stock price reflects the weighted averageopinions of all investors in the market.In the long run (i.e., a dynamic viewpoint), stock price is determined by the opinions ofmarginal investors in the market.While different investors may have different opinions about the value of the same stock,there is only one price for the same stock.In an efficient market, the stock price may deviate from marginal investors' valuation for aprolonged period but eventually the price will converge to the value.

Stock prices change everyday by market forces. If more people want to buy a stock (demand) than sell…

Answered: All of the following statements about…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 26P

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Similar questions

Earnings per share is a factor used by the stock market to determine stock prices. Select one: True False
Which of the following statements is correct? Multiple Choice Penny stocks are the stocks of small companies that are priced below $1 per share. Restricted stocks are shares of stock issued to executives that have limitations on voting rights. The capital market line graphs the relationship between return and risk (beta). All of these choices are correct.
Use the data below to determine which of the statements is most accurate? a) For a given percentage change in stock price, company Y will have less impact on the market-cap weighted index as company Z. b) A 100% increase in the stock price of company X will have a smaller impact on the price-weighted index than a 100% increase in the stock price of company Z. c) For a given percentage change in the stock price, company X will have a greater impact on the market-cap weighted index than companies Y & Z.
When technical analysts say a stock has good “relative strength,” they mean:a. The ratio of the price of the stock to a market or industry index has trended upward.b. The recent trading volume in the stock has exceeded the normal trading volume.c. The total return on the stock has exceeded the total return on T-bills.d. The stock has performed well recently compared to its past performance.
According to the weak-form efficient market hypothesis, which of the following types of information are fully reflected in stock prices? Group of answer choices insider information earnings announcements and rates of return dividend and earnings announcements rates of return, trading volume, and news about the economy past price and volume data
Which of the following variables is NOT used to explain stock returns in the Fama-French three-factor model? A. Book-to-market ratio B. Interest rates C. Size (market capitalization) D. Return on the market index
When we compute the diluted earnings per share, under the treasury stock method for stock options, if the exercise price of the options exceeds the average market price, then: (Enter 1, 2, 3, or 4 that represents the correct answer.) we present both diluted earnings per share and basic earnings per share. we present only diluted earnings per share, but not basic earnings per share. the number of shares assumed issued will be greater than the number of shares assumed reacquired. the number of shares assumed issued will be smaller than the number of shares assumed reacquired.
Which of the following are consistent with the efficient market hypothesis? Check all that apply. Changes in stock prices can be accurately predicted by investors. At the market price, the number of people who believe the stock is overvalued exactly equals the number of people who think the stock is undervalued. A positive news release about a company will increase the value and stock price for that firm. Some investors cite the existence of anomalies—observations that do not fit the model—as evidence that stock markets are not efficient. Which of the following are such anomalies? Check all that apply. The best time to sell a stock is late on Wednesday or Friday, whereas the best time to buy a stock is late on Tuesday or Thursday. The movement of stock prices of companies over time is the same as the changes in their earnings. High returns to a stock in one period are associated with even higher returns in a later period. There is a…
Which of the following is false? An increase in the cost of common share may be due to an increase in share’s beta The cost of common shares can be classified as a cost of retained earnings or cost of issuance of new shares. Floatation cost affects the cost of equity from newly issued stocks and this impacts the weighted average cost of capital The floatation cost which is deducted against the stock issue price should always be considered in all scenarios of computing the cost of ordinary stock.
When all investors have the same information and care only about expected return and volatility; if new information arrives about one stock, can this information affect the price and return of other stocks?
Which of the following statements is most accurate in analyzing a stock? If the expected return exceeds itsrequired return__________________a. The stock should be sold.b. The stock is good to buy.c. The management is probably not trying to maximize the price per share.d. Dividends are not likely to be declarede. The stock is experiencing supernormal growth
You meet with two investors who have different expectations for stock CBD that can be addressed with various positions in puts, calls, and the underlying stock (or combination). For each investor, document the (1) name of the recommended strategy, (2) the components of the suggested trade, and (3) draw the payoff as a function of the stock price. a. Investor A already holds CBD stock and wants to lock in gains if the stock drops below its current levels, while maintaining upside exposure. b. Investor B wants to profit if CBD’s upcoming earnings announcement is either unexpectedly good or disappointingly bad. c. Investor C already holds CBD stock and believes the stock will not increase much in the near term. As such, she wants to earn some extra income using options.

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