Home > Money, Banking and Financial Markets > Quizzes > Money, Banking, and Financial Markets Practice Test: The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis
Money, Banking, and Financial Markets Practice Test: The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis
Fast practice, instant feedback. Timer auto-submits when time’s up.
Avg score: 0% • Most missed: “A change in perceived risk of a stock changes”
The efficient market hypothesis (EMH) is a financial economics theory that states that asset prices reflect all available information. The EMH also states that stocks always trade at their fair value on exchanges, which means that it is impossible to outperform the market through expert stock selection or market timing. The EMH is a cornerstone of modern financial theory, but it is highly controversial and often disputed. For example, investors such as Warren Buffett have consistently beaten the market over long periods.  The rational expectations hypothesis, also known as the... Show more
Money, Banking, and Financial Markets Practice Test: The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis
Time left 00:00
25 Questions

1. In the one-period valuation model, an increase in the required return on investments in equity
2. Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be
3. One of the assumptions of the Gordon Growth Model is that dividends will continue growing at________ rate.
4. To say that stock prices follow a ʺrandom walkʺ is to argue that stock prices
5. You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gatewayʹs profitability. If you decide to invest in Gateway stock, you can expect to earn
6. Using the Gordon growth model, a stockʹs price will increase if
7. Evidence against market efficiency includes
8. The elimination of unexploited profit opportunities requires that ________ market participants be well informed.
9. Evidence in support of the efficient markets hypothesis includes
10. Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12, and g is 10% or 0.10, then the current stock price is
11. Increased uncertainty resulting from the subprime crisis ________ the required return on investment in equity.
12. When a corporation announces a major decline in earnings, the stock price may initially decline significantly and then rise back to normal levels over the next few weeks. This impact is called________.
13. If expectations are formed adaptively, then people
14. Using the Gordon growth formula, if D1 is $1.00, ke is 10% or 0.10, and g is 5% or 0.05, then the current stock price is
15. When Happy Feet Corporation announces that their fourth quarter earnings are up 10%, their stock price falls. This is consistent with the efficient markets hypothesis
16. People have a strong incentive to form rational expectations because
17. The subprime financial crisis lead to a decline in stock prices because
18. In the generalized dividend model, a future sales price far in the future does not affect the current stock price because
19. The small-firm effect refers to the
20. Periodic payments of net earnings to shareholders are known as
21. The January effect refers to the fact that
22. The efficient markets hypothesis predicts that stock prices follow a ʺrandom walk.ʺ The implication of this hypothesis for investing in stocks is
23. In the Gordon growth model, a decrease in the required rate of return on equity
24. If during the past decade the average rate of monetary growth has been 5% and the average inflation rate has been 5%, everything else held constant, when the Federal Reserve announces that the new rate of monetary growth will be 10%, the adaptive expectation forecast of the inflation rate is
25. The advantage of a ʺbuy-and-hold strategyʺ is that

⚡ Recently practiced quizzes in this topic
Live quiz activity
Money, Banking, and Financial Markets Practice Test: Transmission Mechanisms of Monetary Policy Money, Banking, and Financial Markets Practice Test: The Money Supply Process Money, Banking, and Financial Markets Practice Test: The Basics of Money Money, Banking, and Financial Markets Practice Test: Financial Regulation Money, Banking, and Financial Markets Practice Test: Monetary Policy Money, Banking, and Financial Markets Practice Test: How Interest Rates Behave Money, Banking, and Financial Markets Practice Test: The Basics of Interest Rates Money, Banking, and Financial Markets Practice Test: Risk and Term Structure of Interest Rates Money, Banking, and Financial Markets Practice Test: Financial Crises and the Subprime Meltdown Money, Banking, and Financial Markets Practice Test: Tools for Monetary Policy (U.S.)
 
❤ If you liked Fatskills, consider supporting us by checking out The Life Manuals You Never Got.

🌈  Our mission is to help improve your scores in any subject and exam withonline quizzes, practice tests, study guides, & advice for students. Since 2018.
About | Explore | User Guide | Topics | Subjects | Doubt Solver | Career Aptitude Test | Answers | Free Tools | What Should We Know?
Privacy | Terms |
Without work one finishes nothing. - Ralph Waldo Emerson
© 2026 Fatskills.com

All trademarks, logos and brand names are the property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, trademarks and brands does not imply endorsement.