FIN 351 TEXT QUIZ CHAPTER 10

76 A good reason for a stock repurchase is
A That management believes that the stock is overvalued in the market
B. So the company can escape the threat of a future merger or acquisition
C. To fulfill obligations under an employee stock ownership plan
D. B and C
77. When a stock begins actively trading on an exchange regularly, any excess returns begin to disappear
because:
A. Market efficiency is taking hold
B. Market inefficiency is taking hold
C. Inside traders begin leaking information
D. None of the above
78. Firms with low P/E ratios that are often neglected by major investors seem to provide:
A. An inferior risk-adjusted return
B. A superior risk-adjusted return
C. A superior return, not adjusted for risk, though
D. No return
79. Studies of the small-firm effect indicate there may be superior return potential in investing in
smaller-capitalization firms because:
A. The high P/E ratios of many of these firms eventually lead to superior returns
B. Smaller firms have less expenses, therefore, making more money for their investors
C. There is less efficiency in this segment of the market due to minimal institutional participation
D. Smaller firms are always growing, along with the returns that their investors receive
80. The study by Fama and French maintain that the lower the ratio of market value to book value, the
A. More overvalued the stock price
B. Higher the potential return on the stock
C. Higher the expected growth in earnings
D. Lower the expected growth in earnings