Problem 1: The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield, are based on:
- the largest 20 percent of the stocks traded on the NYSE.
- the stocks of the largest 10 percent of the publicly traded firms in the U.S.
- all of the stocks listed on the NYSE.
- the stocks of the 500 companies included in the S&P 500 index.
Problem 2: Which of the following is true regarding the efficient market hypothesis?
- It argues that efficient markets are not volatile throughout a trading day.
- It suggests that an efficient market can only consider historical information when determining current security prices.
- It proves that market inefficiencies do not exist in either the short-run or the long-run.
- It implies that all investments in an efficient market have a net present value of zero.
Problem 3: Which of the following statements is true regarding systematic risk? Select all that apply:
- is diversifiable
- is the total risk associated with surprise events
- it is not project or firm specific
- is measured by beta