1) Which one of the following statements related to market efficiency tends to be supported by current evidence?
a) Markets tend to respond quickly to new information.
b) Short-run price movements are easy to predict.
c) Markets are most likely only weak-form efficient.
d) Mispriced stocks are easy to identify.
e) It is easy for investors to earn abnormal returns.
2) Which one of the following is an example of diversifiable risk?
I Earthquake damages an entire town.
II Federal government imposes a $100 fee on all business entities
III Employment taxes increase nationally.
V Toymakers are required to improve their safety standards.
3) Which one of the following statements is correct concerning unsystematic risk?
a) Beta measures the level of unsystematic risk inherent in an individual security.
b) Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk.
c) An investor is rewarded for assuming unsystematic risk.
d) Standard deviation is a measure of unsystematic risk.
e) Eliminating unsystematic risk is the responsibility of the individual investor.
4) A news flash just appeared that caused about a dozen stocks to suddenly drop in value by 20 percent. What type of risk does this news flash best represent?
a) Non diversifiable
b) Portfolio
c) Total
d) Unsystematic
e) Market