9 Which of the following is a characterization of the Effici

9. Which of the following is a characterization of the Efficient Markets Hypothesis? (a) All portfolios in the financial market are on the efficient portfolio frontier (b) The stock market in the U.S. outperforms every other stock market in the world (c) Stocks earn a higher return than bonds, because they are riskier investments. (d) All securities are fairly priced in the light of the information available to investors. 10. What is a company\'s market capitalization, as explained in the lecture? (a) It is the company\'s assets minus its liabilities. (b) It is the number of the outstanding shares of the company multiplied by the stock price. (c) It is the value of the company\'s assets (d) It is a synonym for the share repurchases that the company has undertaken in the past fiscal year 11. We only observe lucky and unlucky investors, and we would not find any superior investment managers who can consistently beat the market. We have: (a) No market efficiency (b) Weak market efficiency (c) Semi-strong market efficiency (d) Strong market efficiency 12. Assuming that the CAPM holds, what is the expected return of asset A whose equals 0.5? Assume that the risk-free rate equals 1.2% and expected return of Market Portfolio of 5% (a) 3.1% (b) 3.8% (c) 4.5% (d) 5.0% 13. Which statement is not correct? (a) If X and Y are independent, Cov(X, Y (b) Cov(aX, bY) abCov(X, Y) (c) Var(X + Y) = Var(X) + Var(Y) (d) Var(aX baVar(X) 0

Solution

9) d is correct

According to efficient market hypothesis, it is impossible to beat the market as securities are correctly prices because they undertake all the information available in the market.

10) b is correct

Market capitalisation= no. Of outstanding shares * stock price.

11) d

According to strong market efficiency, investors believe that all the information has been incorporated in the price and no insider information can result in higher return.

No superior manager can be found who can be an advantage to the investor.