Question

1. Larry is a highly regarded Canadian equity manager. His twin sister Mary is a highly successful investment banker. Recently, at a family dinner, Mary casually mentioned that her client AMOS wants to acquire FLYNN to extend its geographical market presence. If Larry acts on this information, what would be the likely outcome for his action?

a) It would have the effect of window dressing his clients’ portfolios.

b) He is enhancing the SEMI-STRONG FORM of market efficiency.

c) He could be subject to severe penalties for insider trading.

d) He is enhancing the WEAK FORM of market efficiency.

e) All of the above.

2. According to the efficient market hypothesis,

a) Fundamental analysis that generates POSITIVE alpha violates STRONG form efficiency.

b) Fundamental analysis that generates POSITIVE alpha violates WEAK form efficiency.

c) Fundamental analysis that generates POSITIVE alpha violates SEMI-STRONG form efficiency.

d) Both a) and c) are correct.

e) Both b) and c) are correct.

3) Which of the following are consistent with the tenets of Prospect Theory?

a) A dollar loss is LESS painful than the satisfaction from the same dollar gain. MORE

b) Individuals are risk LOVERS with respect to INCREASES in wealth. AVERSE

c) Individuals are risk LOVERS with respect to DECREASES in wealth.

d) Both a) and b).

e) Both a) and c).

Answer 1

1. Larry is a highly regarded Canadian equity manager. His twin sister Mary is a highly successful investment banker. Recently, at a family dinner, Mary casually mentioned that her client AMOS wants to acquire FLYNN to extend its geographical market presence. If Larry acts on this information, what would be the likely outcome for his action?

  b) He is enhancing the SEMI-STRONG FORM of market efficiency

2.According to the efficient market hypothesis,

  d) Both a) and c) are correct.

3.Which of the following are consistent with the tenets of Prospect Theory?

(E) Both a) and c).