1.An unexpected announcement by the Chairmen of the Federal Reserve is made befo
ID: 2702742 • Letter: 1
Question
1.An unexpected announcement by the Chairmen of the Federal Reserve is made before the NYSE opens. The announcement indicates that the US economy is likely to enter into a prolonged recession. When the stock market opens the stock indexes fall by 6 percent in the first ten minutes of trading. This extreme download movement in stock prices illustrates that markets are inefficient. Efficient markets would have priced this information into asset prices before the announcement. (true/false)
2. Warren Buffet believes in timing the stock market and he only makes investments after the market has fallen by ten percent from its previous 52 week high. (true/ false)
3. If you buy ETF with the symbol SPY every time it falls by .5 per cent and sell it every time it rises by 1 per cent you are using fundamental analysis to make your investment decisions. (true /false)
4. If investors were rational they would simply buy CDs insured by the FDIC and TIPS issued by the US Government. The fact that people buy stocks in risky companies' illustrates that they are not risk averse. (true/ false)
5. Prices of Bonds only reflect the past while prices of equities reflect future expectations. (true/false)
6. According to Makiel; (author of a random walk down wallstreet) Stock prices are random so returns over the long run are expected to be zero. (true/false)
7. Berkshire Hathaway continues on a yearly basis to issue new shares to fund aquisitions. (true/false)
8. Bershire Hathaway's ownership interest in Coca-Cola declined in 2012 as Coca- Cola issued two million new shares of common stock.(true/false)
Explanation / Answer
1. F Only if it was expected.
2, F Buffet belives in fundamentals not timing.
3. F Fundamentals invove such things as analyzing fiinancials and competitive data.
4. F Rational means they look for good risk/reward tradeoffs, not to totally avoid risk.
5. F Bonf prices relect expectations as to future interest rates and financial position of issuers
6. F Buffett generates a lot of cash from his investments which he uses for acquisitions.
7. F (I think, you might want to look it up).
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