Question

The fact that insider trading consistently produces excess returns proves that the stock market is

1. Not strong form efficient
2. Not semi strong form efficient
3. Not weak form efficient
4. 100% efficient

The P/E ratio of a stock is roughly the reciprocal of

1. The debt ratio
2. The debt to equity ratio
3. The balance sheet ratio
4. The company’s return on equity

The recent drop in the stock market due to the Coronavirus is probably best classified as a

1. Systemic risk
2. non-systemic risk
3. fundamental risk
4. technical risk

Stock in X Corp. trades on the NYSE, is currently priced at $100 per share and has a beta of 1.6.  If the S&P 500 goes down by 2%, what would you expect the new price of X Corp shares to be?

                        Answer:  _____________________________  per share

                                                

In financial markets, the bid price is

1. the price at which you can buy a financial instrument
2. the price at which you can sell a financial instrument

In financial markets,

1. bid < ask
2. bid > ask
3. bid = ask

A stop-loss order will guarantee that you will not sell your stock below a certain price.  (T/F)   

In a short sale, you __________ shares today and __________ shares tomorrow.  (Fill in blanks)                         

Answer 1

1- answer is (a) not strong form efficient.

The fact that insider trading consistently produces excess returns proves that the stock market is not strong form efficient. This is because in a strong form efficient market , security prices fully reflect both public and private information so insider will not be able to earn abnormal returns from trading on the basisof private information.

2- answer is (d) return on equity

we knoe P/E ration= price per share/ earning per share

as we know return on equity= net income/ shareolder's equity. (equation 1)

where net income= earnings after tax -dividends

shareholder's equity= price of a share* number of shares

now substituting value of numerator and denominator in equation 1 we get

=(earnings after tax -dividends)/ (price per share* number of shares)

which can also be written as

=((earnings after tax -dividends)/number of shares)/ price per share (equation 2)

we know that (earnings after tax -dividends)/number of shares = earning per share

substituting earning per share in equation 2 we get

=earning per share/ price per share

if we recipricate abpve equation we get

= price per share/ earning per share = P/E ratio

3- answer is (a) systemic risk.

this is because systeatic risk in a risk inherent to entire market also known as undiversifiable risk which affects overall market and not just a specific stockor industry. risk arising due to coronavirus is unpredictable and impossible to completely avoid. Coronavirus is a pandemic which is affecting the global economy as a whole.

5- answer is (a) the price at which you can buy a financial instrument

6- answer is (a) bid< ask

this is because buyer tries to buy a stock at lower prices and sell the same at higher price to capture profit.