In equilibrium, stock prices are stable and there is no general tendency for people to buy versus to sell and also hold the following conditions: O a The curent market stock price equals its intrinsic value and expected returns must equal required returns. O b. The current market stock price doesn't equal its intrinsic value and expected returns must not equal required returns O c. Expected returns must equal required returns, but current market stock price doesn't equals its intrinsic value. O d. The current market stock price equals its intrinsic value, but expected returns must not equal required returns.

In equilibrium, stock prices are stable and there is no general tendency for people to buy versus to sell and also hold the following conditions: O a The curent market stock price equals its intrinsic value and expected returns must equal required returns. O b. The current market stock price doesn't equal its intrinsic value and expected returns must not equal required returns O c. Expected returns must equal required returns, but current market stock price doesn't equals its intrinsic value. O d. The current market stock price equals its intrinsic value, but expected returns must not equal required returns.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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In equilibrium, we assume that a stock's price does not equal its intrinsic value. Group of answer choices True False
For a stock to be in equilibrium, two conditions are necessary: (1) The stock's market price must equal its intrinsic value as seen by the marginal investor, and (2) the expected return as seen by the marginal investor must equal his or her required return. a. True b. False For a stock to be in equilibrium, two conditions are necessary: (1) The stock's market price must equal its intrinsic value as seen by the marginal investor, and (2) the expected return as seen by the marginal investor must equal his or her required return. O a. True O b. False
please answer both. If a stock's fair return increases, what will happen to the stock's value? A. It will increase. B. It will not change. C. It will decrease. If the market risk premium rises, what will happen to the stock's price? A. It will not change. B. It will increase. C. It will decrease.
In efficient markets, the rate of return on a stock should be: A. always greater than the risk-free rate B. Less than zero C. Related to the systemic risk of the stock D. Zero; no stock should earn a positive return
The zero-growth model of stock valuation; a. implies a zero growth in stock price over time b. implies a constant required return c. implies a discounted perpetuity d. No option is correct
According to the efficient market theory, whenever investors find that the required return of stock is less than the expected return of the stock, the investor will buy the stock. This will: a. drive the price up b. cause the market to crash c. drive the price down d. not affect the price
If the fair value of a stock is more than its market value, which of the following is a reasonable conclusion? a. The stock has a low level of risk b. The stock offers a high dividend payout ratio c. The market is undervaluing the stock d. The market is overvaluing the stock
If the market value and the intrinsic value of a stock differ; O a. the stock sells for its fair value O b. the stock sells for its equilibrium value O c. the stock is mispriced O d. the stock is fairly priced
Which of the following statements is true? A. Because of flotation costs, dollars raised by retaining earnings must work harder than dollars raised by selling new shares. B. All other things being equal, a call option price will increase, and a put option price will decrease if an exercise price increases. C. Security market line (SML) plots return against total risk which is measured by the standard deviation of returns. D. Because potential long-term returns, income from rent-payments, diversification, and inflation hedge, real-estate would be a good investment.
3) What is called the called the return on a stock beyond what would be predicted from market movements ? A)An abnormal return B) An economic return C) An irrational return D) None of the options are correct. E) All of the options are correct. Please justify your answer.
The efficient markets hypothesis identifies three forms of market efficiency. (a) You observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency? (b) If the weak form of the efficient market hypothesis is valid, must the strong form also hold? Conversely, does strong form efficiency imply weak form efficiency? (c) Stock XYZ, which traded for several months at a price of K72, and then declines to K65. if the stock eventually begins to increase in price, K72 is considered a resistance level because investors who bought originally at K72 will be eager to sell their shares as soon as they can break even on their investment. If everyone in the market believes in resistance levels, why do these beliefs not become self-fulfilling prophecies?
The value of any given stock is theoretically determined by a. The present value of its expected future free cash flows discounted by its risk free premium. b. none of the answers given c. The present value of its expected future free cash flows discounted by its CAPM d. The present value of its expected future free cash flows discounted by its’ WACC

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