Chapter 5 - BUS 361 Sample Test
1. The NYSE does not exist as a physical location; rather it represents a loose collection of dealers who trade stock electronically.
2. Investment banking firms:
a. facilitate the issue of new
b. are secondary market participants.
c. are primary market participants.
d. a and b are true
e. a and c are true
3. An example of a primary market transaction is:
a. buying 100 shares of
Wal-Mart stock from your uncle.
b. buying 100 shares of IBM stock through the New York Stock Exchange via an online brokerage firm.
c. buying 100 shares of a new issue of Home Depot common stock.
d. One financial institution buys 200,000 shares of IBM stock from another institution, through an investment banker.
3. You sell 100 shares of GM on the NYSE through your broker.
4. The New York Stock Exchange (NYSE) is:
a. a secondary market.
b. a physical asset market.
c. a primary market
d. Statements a and b are correct.
e. Statements b and c are correct.
5. If the stock market is semistrong-form efficient, which of the following statements is correct?
a. All stocks should have the same expected returns. However, they may end up with different realized returns.
b. Investors can outperform the market if they have access to information that has not yet been publicly revealed.
c. In equilibrium, stocks and bonds should have the same expected returns.
d. If the stock market has been performing strongly over the past several months, stock prices are more likely to decline than increase over the next several months.
e. High-risk stock should have the same expected return as low-risk stocks.
6. Which of the following statements is most correct?
a. If a market is strong-form efficient, this implies that the returns on bonds and stocks should be identical.
b. If a market is weak-form efficient, this implies that above-average returns can best be achieved by focusing on past movements of stock prices.
c. If a market is semistrong-form efficient, this implies that all private information is rapidly incorporated into market prices.
d. If a market is semistrong-form efficient, this implies that above-average returns cannot be achieved by analyzing publicly available data because such information is already reflected in stock prices.
7. Assume that markets are semistrong-form efficient, but not strong-form efficient. Which of the following is CORRECT?
a. Each common stock has an expected return equal to that of the overall market.
b. Investors can expect to earn returns above those predicted by past performance if they have access to public information.
c. Investors may be able to earn abnormally high returns if they have access to information that has not been publicly revealed.
d. Good technical analysis of a company's trends and financials could help an investor earn better returns than the market.
8. Which of the following statements is CORRECT?
a. If the stock market is weak-form efficient, then information about recent trends in stock prices would be very useful when it comes to selecting stocks.
b. If the stock market is semistrong-efficient, all stocks should have the same expected return.
c. Because of increased globalization, all of the world's stock markets are equally efficient.
d. Even if the stock market is semistrong-efficient, insider information may not be reflected in current market prices.
9. You recently sold 200 shares of Disney stock to your brother, and the transfer was made through a broker. This is an example of:
a. A money market transaction.
b. A primary market transaction.
c. A secondary market transaction.
d. A futures market transaction.
e. An over-the-counter market transaction.
10. You recently sold 100 shares of Microsoft to your brother at a family reunion. At the reunion, your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?
a. This is an example of a direct transfer of capital.
b. This is an example of a primary market transaction.
c. This is an example of an exchange of physical assets.
d. This is an example of a money-market transaction.
e. This is an example of a derivative market transaction.