Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 13, Problem 3PS
Market efficiency True or false? The
- a. There are no taxes.
- b. There is perfect foresight.
- c. Successive price changes are independent.
- d. Investors are irrational.
- e. There are no transaction costs.
- f.
Forecasts are unbiased.
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Students have asked these similar questions
All of the following statements about an efficient market are correct EXCEPT:
a. All financial transactions have an NPV of equal to zero
b. A skilled individual may have sustainable above market returns
c. The investor is compensated properly for risk borne
d. The investor does not receive abnormal returns consistently
1. How can investors make decisions about financial instruments that involve future payoffs?
a) There is no uncertainty in market economies.
b) This can be done only when the future payoffs are certain.
c) Prices are determined by supply and demand which is always certain.
d) Investors can use probabilities and risk measurement procedures to account for all
possibilities.
If the weakest form of market efficiency holds, then security prices reflect all information found in past prices and volume. Thus, traditional "technical analysis" will not work.
Group of answer choices
True
False
Chapter 13 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 13 - Prob. 1PSCh. 13 - Prob. 2PSCh. 13 - Market efficiency True or false? The...Ch. 13 - Prob. 4PSCh. 13 - Prob. 5PSCh. 13 - Behavioral finance True or false? a. Most managers...Ch. 13 - Prob. 7PSCh. 13 - Prob. 8PSCh. 13 - Prob. 9PSCh. 13 - Market efficiency How would you respond to the...
Ch. 13 - Market efficiency Respond to the following...Ch. 13 - Market efficiency evidence Which of the following...Ch. 13 - Prob. 13PSCh. 13 - Prob. 14PSCh. 13 - Prob. 15PSCh. 13 - Market efficiency implications What does the...Ch. 13 - Prob. 17PSCh. 13 - Prob. 18PSCh. 13 - Prob. 19PSCh. 13 - Prob. 20PSCh. 13 - Prob. 21PSCh. 13 - Prob. 22PSCh. 13 - Prob. 23PS
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- Which of the following statements is false? A. A short sale allows investors to generate additional profits from a decline in a security’s price. B. One of underlying assumptions of technical analysis is that supply and demand are driven by both rational andirrational investor behavior. C. Investors get a margin call if the equity in a margin account rises above the required maintenance level. D. Technical analysis cannot modify price manipulations.arrow_forwardThe underlying assumptions of technical analysis are that A.price move in predictable patterns B. Market value is determined by market news C. Investors are rationalarrow_forwardWhat is weak-form EMH? What would you expect to see/not see if markets where weak form efficient? In other words, can you think of market events that would serve as evidence that market is or isn’t weak-form efficient?arrow_forward
- A critical assumption in the classical model is that a. markets are perfectly competitive in the long run b. markets clear in the long run c. markets are perfectly competitive in the short run d. markets clear in the short runarrow_forwardThe weak form of the efficient market hypothesis implies that: CHOOSE ONE A. Investors can achieve abnormal returns, on average, using technical analysis, after adjusting for transaction costs and taxes. B. Insiders, such as specialists and corporate board members, cannot achieve abnormal returns on average. C. No one can achieve abnormal returns using market information. D. NONE OF THE ABOVEarrow_forwardWhat is the additional assumption imposed by the CAPM model compared to the Markowitz procedures? O No taxes and transaction costs O Investors are rational, mean-variance optimizers O Investors can borrow or lend at a common risk-free rate, and short selling is allowed O Markets are perfectly competitive and investors are price takersarrow_forward
- The weak form of the efficient market hypothesis states that _______? Group of answer choices successive price changes are dependent. successive price changes are independent. successive price changes depend on trading volume. successive price changes are biased. properly specified trading rules are of value.arrow_forwardWhich of the following statements are true and which are false? I: Externalities are the only reason for market failure. II: The impact of a negative externality is accounted for by the market price. Both I and Il are false. Ol is true, Il is false. Ol is false, |l is true. Both I and Il are true.arrow_forwardWhich of the following is true according to the pure expectations theory? Forward rates:a. Exclusively represent expected future short rates.b. Are biased estimates of market expectations.c. Always overestimate future short rates.arrow_forward
- The pricing efficiency of financial markets can be expected to decrease if the cost of skillful financial analysis increases. True Falsearrow_forwardIn the strong form of the market accoarding to the Efficient Market Hypothesis investor can earn excess returns by usin the available information. Select one: a. False b. Truearrow_forwardWhich of the following is not possible to describe technical analysis? Select one: O Market is efficient and all information is reflected in prices O Prices are determined by supply and demand O None of the answers are correct O technical analysis looking for stock trends and patterns that might predict future movementarrow_forward
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