a) Your broker suggests that you can make consistent, excess profits by purchasing stocks on the 20th of the month and selling them on the last day of the month. If that is true, then
A) Insiders will be the only investors to profit
B) The market is only semi-strong form efficient
C) The market violates even weak-form efficiency
D) Prices follow a random walk
b) A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm, based on any method for assessing risk. In evaluating this asset, the decision maker should.
A) Increase the cost of capital used to evaluate the projects to reflect the higher risk of the project.
B) Increase the NPV of the asset to reflect the greater risk.
C) Increase the IRR of the asset to reflect the greater risk
D) Reject the asset, since its acceptance would increase the risk of the firm
E) Ignore the risk differential if the asset to be accepted would comprise only a small fraction of the total assets of the firm.
c) Modigliani and Miller suggests that the value of a firm is not affected by the firm’s dividend policy, due to _______.
A) The clientele effect
B) The optimal capital structure
C) The informational content
D) The relevance of dividends