Question 1

After a series of positive earnings reports, a stock’s price has risen steadily. Despite the positive news, a major financial firm releases a pessimistic report on the stock, predicting a downturn due to industry-wide challenges. Following this report, the stock price declines sharply. Investors who reacted quickly to the firm’s report avoided losses.Which market theory does this scenario best illustrate?

Options :

A : Semi-Strong form of Efficient Market Hypothesis.

B : Strong form of Efficient Market Hypothesis.

C : Rational Expectations Hypothesis.

D : Random Walk Theory.

Answer: A

Question 2

What investment has the narrowest probable range of returns?

Options :

A : Average five-year return 10% with a standard deviation of 6%.

B : Average five-year return 9% with a standard deviation of 4%.

C : Average five-year return 9% with a standard deviation of 6%.

D : Average five-year return 10% with a standard deviation of 7%.

Answer: B

Question 3

The price of FMA common stock is set to break through its 200-day moving average line from below on heavy volume. How might a technical analyst interpret this information?

Options :

A : A buy signal as FMA's price is set to rise.

B : A sell signal as FMA's price is set to fall.

C : The upward price trend is reversing.

D : The declining price trend will continue.

Answer: A

Question 4

An investor comparing two funds observes that both have the same average return over five years. However, Fund A has a standard deviation of returns of 8%, while Fund B's standard deviation is 3%. Which fund is likely to have the narrower probable range of returns, and why is this significant?

Options :

A : It-s not possible to determine without knowing the funds' betas.

B : Both funds will have the same range of returns since their average returns are identical.

C : Fund A, because a higher standard deviation indicates more predictable outcomes.

D : Fund B, because a lower standard deviation indicates less variability in returns.

Answer: D

Question 5

Two leading companies in the automobile industry are engaged in a price war. What is the most likely outcome of this competitive rivalry?

Options :

A : One company will exit the market.

B : Industry profit margins will decline as a result of lower prices.

C : The price war will lead to higher prices for consumers.

D : Both companies will maintain their profit margins.

Answer: B

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