Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 27, Problem 6QCMC
To determine
Concept based on efficient market hypothesis.
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According to the efficient markets hypothesis,a. changes in stock prices are impossible to predict from publicinformation.b. excessive diversification can reduce an investor's expected portfolioreturns.c. the stock market moves based on the changing animal spirits ofinvestors.d. actively managed mutual funds should give higher returns than indexfunds.
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According to the efficient markets hypothesis,a. excessive diversification can reduce an investor’sexpected portfolio returns.b. changes in stock prices are impossible to predictfrom public information.c. actively managed mutual funds should generatehigher returns than index funds.d. the stock market moves based on the changinganimal spirits of investors
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Principles of Economics, 7th Edition (MindTap Course List)
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- Which type of financial intermediary provides individual investors with professional management of their money and diversification in order to limit the risk of investing? A. mutual funds B. insurance companies C. hedge funds D. investment banksarrow_forwardwhich one is correct? According to the semistrong-form efficient market hypothesis, which of the following types of information are fully reflected in stock prices? a. dividend and earnings announcements b. earnings announcements and rates of return c. rates of return, trading volume, and news about the economy d. All of these are correct. e. rates of return, trading volume, and block tradesarrow_forwardThe relationship between a bond and its price is easier to determine than the relationship between a stock and its price.True or Falsearrow_forward
- The main advantage of mutual funds is that theyprovidea. a return insured by the government.b. an easy way to hold a diversified portfolio.c. an asset that is widely used as the medium ofexchange.d. a way to avoid fluctuations in stock and bondprices.arrow_forwardI. When people buy stock, is there a guarantee that they will receive dividends or that they will be able to sell the stock at a price higher than the price they paid for it? J. If there is no guarantee, why are people willing to buy stock?arrow_forward19. Which is the correct bar chart if the stock's opening price is PI5, closing price is P25, highest price is P30, and lowest price is P10? a. d.arrow_forward
- Identify the following numbers whether it is a "BOND" or "STOCK"arrow_forwardConsider the following statements: If dividends are taxed more heavily than capital gains, then investors: I. Should pay more for stocks with low dividend yields. II. Should pay more for stocks with high dividend yields. III. Should pay the same for stocks with high or low dividend yields. IV. Should accept a lower pre-tax rate of return from stocks with high dividend yields. V. Should accept a lower pre-tax rate of return fróm stocks with low dividend yields. Which of the statements is true? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. Il only a Il only I and IV only I and V only I only earrow_forwardPLS HELP ASAParrow_forward
- Suppose that all investors have the disposition effect. A new stock has just been issued at a price of $61, so all investors in this stock purchased the stock today. A year from now the stock will be taken over, for a price of $73 or $49 depending on the news that comes out over the year. The stock will pay no dividends. Investors will sell the stock whenever the price goes up by more than 10%. a. Suppose good news comes out in 6 months (implying the takeover offer will be $73). What equilibrium price will the stock trade for after the news comes out, that is, the price that equates supply and demand? b. Assume that you are the only investor that does not suffer from the disposition effect and your trades are small enough to not affect prices. Without knowing what will actually transpire, what trading strategy would you instruct your broker to follow? .... a. Suppose good news comes out in 6 months (implying the takeover offer will be $73). What equilibrium price will the stock trade…arrow_forwardSuppose that all investors have the disposition effect. A new stock has just been issued at a price of $50, so all investors in this stock purchased the stock today. A year from now the stock will be taken over, for a price of $60 or $40 depending on the news that comes out over the year. The stock will pay no dividends. Investors will sell the stock whenever the price goes up by more than 10%. a. Suppose good news comes out in 6 months (implying the takeover offer will be $60). What equilibrium price will the stock trade for after the news comes out, that is, the price that equates supply and demand? b. Assume that you are the only investor that does not suffer from the disposition effect and your trades are small enough to not affect prices. Without knowing what will actually transpire, what trading strategy would you instruct your broker to follow?arrow_forwardShould you buy or sell stocks?arrow_forward
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