Which one of the following expressions about stocks is wrong? a.The estimated dividend payment and price of a stock that we get from the internet are just an educated guess: the average of analyst estimates. B. Shorting stocks are restricted in some market because of extremely high risk of shorting. C It is common for young companies typically do not pay dividends

Which one of the following expressions about stocks is wrong? a.The estimated dividend payment and price of a stock that we get from the internet are just an educated guess: the average of analyst estimates. B. Shorting stocks are restricted in some market because of extremely high risk of shorting. C It is common for young companies typically do not pay dividends

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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b) “There is no alpha in an efficient market”. In light of this statement, briefly describe market efficiencyand its forms and why an investor may not be able to locate stocks that provide a positive alpha(undervalued stocks) consistently. (150 – 200 words)
The efficient market hypothesis says that Multiple Choice market prices reflect underlying asset values. individual investors should not participate in the financial markets. investors should expect to earn abnormal profits. financial managers can accurately time stock and bond sales. creative accounting can be used to inflate stock prices.
One concern when screening for stocks with low price-to-earnings ratios is that companies with low P/Es may be fi nancially weak. What criterion might an analyst include toavoid inadvertently selecting weak companies?A . Net income less than zeroB . Debt-to-total assets ratio below a certain cutoff pointC . Current-year sales growth lower than prior-year sales growth
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.
If markets systematically overreact, then the best stocks to buy today are those stocks which have: a. Recently performed exceedingly well b. Recently performed poorly c. Not yet reacted to economic changes d. Moved sharply above its recent high price
(a). Large businesses spend millions of dollars annually on insurance. Why? Should they insure against all risks or does insurance make more sense for some risks than others? (b). Why might firms prefer to fund investments using retained earnings or debt rather than issuing equity? (c). How does asymmetric information explain the negative stock price reaction to the announcement of an equity issue?
Stock brokers must think in k-levels because: They don’t know what companies are really up to. They don’t know what the future will bring. Their valuation of a company depends on uncertainty at the firm level. Their valuation of a company depends on how others value that company.
Which of the following is NOT correct with respect to the Efficient Market Hypothesis? If markets are semi-strong form efficient, then fundamental analysts would not be able to earn abnormally good returns, after considering the risk they assume. O Semi-strong form efficiency says that if a company announces a labor strike, the stock price very quickly adjusts downward. Evidence suggests that markets are NOT strong form efficient, since insiders could make abnormally good returns trading on private information. However, that is illegal. () Semi-strong form efficiency says that when Stryker makes an earning announcement, the stock price quickly reflects the new information. )Weak form efficiency says that technical analysts who study charts of stock prices and volumes can regularly make abnormally good returns, after considering the risk the assume. Page 24 of 30
Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE? a. Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different from the "true" or "expected future" beta. b. The beta of an "average stock," or "the market," can change over time, sometimes drastically. c. Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. d. All of the statements above are true. e. The fact that a security or project may not have a past history that can be used as the basis for calculating beta.
Which of the following (hypothetical) observations would most contradict the proposition that the stock market is weakly efficient? Explain.a. Over 25% of mutual funds outperform the market on average.b. Insiders earn abnormal trading profits.c. Every January, the stock market earns abnormal returns.
If the expected rate of return on a stock is less than the required rate of return, The stock is experiencing supernormal growth. The stock should not be bought. The company is probably not trying to maximize its stock price. The stock is a good buy. Dividends are not being declared.
Moving to another question will save this response. Question 5 According to the strong form of efficient market hypothesis: Using past price and volume information one can earn abnormally high returns from stocks. Using insider information one can earn abnormally high returns from stocks. Private information is of no help in earning abnormally high returns. Financial statement analysis can be used to earn abnormally high returns from stocks. Moving to another question will save this response.