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252 Frederic S. Mishkin Economics of Money, Banking, and Financial Markets, Seventh Edition

73)

According to the efficient markets hypothesis, the current price of a financial security:

(a)

is the discounted net present value of future interest payments.

(b)

is determined by the highest successful bidder.

(c)

fully reflects all available relevant information.

(d)

is a result of none of the above.

Answer:

Question Status: Revised

74)

According to the efficient markets hypothesis, the best strategy for betting on an athletic tournament, such as the NCAA basketball tournaments, is to

(a)

randomly pick the winners in each round.

(b)

watch as many games as possible on television so you are as well informed as the “experts.”

(c)

select the teams by your favorite mascots.

(d)

select the highest seeded team to win each round.

(e)

always select the underdog to win.

Answer:

Question Status: New

75)

During the past decade, the average rate of monetary growth has been 5%, and the average inflation rate has been 5%. If the Federal Reserve announces that the new rate of monetary growth will be 10%, the rational expectation forecast of inflation will be

(a)

5%.

(b)

between 5 and 10%.

(c)

less than 5%.

(d)

10%.

(e)

more than 10%.

Answer:

Question Status: New

76)

If the optimal forecast of the return on a security exceeds the equilibrium return, then:

(a)

the market is inefficient.

(b)

an unexploited profit opportunity exists.

(c)

the market is in equilibrium.

(d)

only (a) and (b) of the above are true.

(e)

only (b) and (c) of the above are true.

Answer:

Question Status: Previous Edition

77)

The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market,

(a)

it will tend to go unnoticed for some time.

(b)

it will be quickly eliminated.

(c)

financial analysts are your best source of this information.

(d)

prices will reflect the unexploited profit opportunity.

Answer:

Question Status: Previous Edition

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