Question

1. If markets are efficient, when new information about a stock becomes available, the price will:

a. remain unchanged because it already reflects this information.

b. accurately and rapidly adjust to include this new information.

c. adjust to accurately reflect this new information over the course of the next few days.

d. most likely increase because all new information has a positive effect on stock prices.

2. Which one of these is included in the yield of a bond with a low credit rating but not included in a U.S. Treasury bond yield? Assume both bonds are selling at a premium.

a. Real rate of return

b. Inflation premium

c. Default premium

d. Loss of premium

3. Market efficiency implies

a. that investors are irrational.

b. that there is no point to buying common stocks.

c. that consistently superior performance is very difficult even for professional investors.

d. that there are no taxes.

Answer 1

Answer 1. If markets are efficient, when new information about a stock becomes available, the price will:

Explanation: The concept of efficiency explain that the price of shares will be the discounted value of all the information.

b. accurately and rapidly adjust to include this new information.

Answer 2. Which one of these is included in the yield of a bond with a low credit rating but not included in a U.S. Treasury bond yield? Assume both bonds are selling at a premium.

Explanation:The bond with a low credit rating have higher amount of default risk , so bond yield should have Default premium.

c. Default premium

Answer 3. Market efficiency implies

Explanation: the efficiency explains market price is reflection of all available information, it means no one can earn superior return for every time.

c. that consistently superior performance is very difficult even for professional investors.