1. Random price movements (i.e. unpredictable price changes) indicate that ________.
(a) investors are irrational
(b) technical analysis to uncover trends can be quite useful
(c) stock prices respond very slowly to both new and old information
(d) markets are functioning efficiently
2. A stock has an expected return of 22 percent (according to the CAPM theory), and a beta of 1:6. The expected return on the market is 16 percent. What must the risk-free rate be?
(a) 4%
(b) 5%
(c) 6%
(d) 7%