Equity Review

A financial analyst is examining whether a country’s financial market is well functioning. She finds that the transaction costs in this market are low and trading volumes are high. She concludes that the market is quite liquid. In such a market:

• A. traders will find it hard to make use of their information.
• B. traders will find it easy to trade and their trading will make the market less informationally efficient.
• C. traders will find it easy to trade and their trading will make the market more informationally efficient.

Which of the following statements is most accurate?

• A. Commodity indexes all share similar weighting methods.
• B. Commodity indexes containing the same underlying commodities offer similar returns.
• C. The performance of commodity indexes can be quite different from that of the underlying commodities.

With respect to the efficient market hypothesis, if security prices reflect only past prices and trading volume information, then the market is:

• A. weak-form efficient.
• B. strong-form efficient.
• C. semi-strong-form efficient.

Jim White has sold short 100 shares of Super Stores at a price of $42 per share. He has also simultaneously placed a “good-till-cancelled, stop 50, limit 55 buy” order. Assume that if the stop condition specified by White is satisfied and the order becomes valid, it will get executed. Excluding transaction costs, what is the maximum possible loss that White can have?

• A. $800.
• B. $1,300.
• C. Unlimited.

• A. 1.7%.
• B. 5.0%.
• C. 11.4%.

A trader who owns shares of a stock currently trading at $100 per share places a “GTC, stop $90, limit $85 sell” order (GTC means good till cancelled). Assuming the specified stop condition is satisfied and the order becomes executed, which of the following statements is most accurate?

• A. The order becomes a market order when the price falls below $85 and remains valid for execution.
• B. The trader faces a maximum realized loss of $15.
• C. The order will be executed at either $90 or $85.

• A. 9.73 bid, offered at 10.14.
• B. 9.81 bid, offered at 10.10.
• C. 9.95 bid, offered at 10.02.

If markets are efficient, the difference between the intrinsic value and market value of a company’s security is:

• A. negative.
• B. zero.
• C. positive.

The primary difference between P/E multiples based on comparables and P/E multiples based on fundamentals is that fundamentals-based P/Es take into account:

• A. future expectations.
• B. the law of one price.
• C. historical information

Which of the following is most likely an element of a strategic analysis of an industry?

• A. Corporate governance
• B. Macroeconomic influences
• C. Product life-cycle