If the market processes new information efficiently, the reaction of market prices to new information will be:

A. unbiased.
B. instantaneous.
C. instantaneous and unbiased.
D. fair.

Tests of return predictability are designed to:

A. detect systematic patterns in asset prices.

B. generate abnormal returns. <-yg bener calculate abnormal returns
C. differentiate between the forms of efficiency.
D. do none of the given options.

Returns greater or less than those that the market expects from a security are known as:

A. inferior returns.
B. normal returns.
C. abnormal returns.
D. true returns.

A period in which prices rise strongly, departing from their true value, frequently followed by a sudden decrease in prices is known as a/an:
*bljjr definisi ini semua
A. post-event drift. (The “Post-Earnings-Announcement Drift” refers to an anomaly in financial markets. It describes the
drift of a firm's stock price in the direction of the firm's earnings surprise for an extended period of time)
B. bubble. (pg 496)
C. overreaction anomaly.
D. buy and hold period. (pg 498)

ABC Ltd made an unexpected announcement concerning a major new contract on Monday, but ABC shares were not traded until the
following Wednesday and Friday. The closing price on Wednesday was unchanged from Monday but different to that on Friday. Trading of
ABC shares appears to be an example of:

A. market efficiency.
B. an announcement imparting no 'new' news.
C. market inefficiency.
D. infrequent trading, not market inefficiency.

A weak-form efficient market can best be described as a market in which:

Fully reflected -> strong form
Semua cannot earn abnormal profit (kesenjangan info)
Weak: past, semi weak: past+news, strong: past+news+private
Read pg 478
A. trading strategies based upon past share prices cannot earn abnormal profits.
B. all publicly available information is fully reflected in share prices.
C. share prices follow predictable trends.
D. trading strategies based on past information can earn abnormal profits.

Can generate abnormal return if there is bias and not instantaneous (overreaction or underreaction )
Semi-strong-form efficiency can best be described as:

A. the ability of investors to earn abnormal profits from the over-reaction of share prices to news.
B. a market in which trading strategies based on past prices cannot earn abnormal profits.
C. a market in which trading strategies based on all publicly available information cannot earn abnormal profits.
D. all information, public and private, is fully impounded in share prices.

The price-earnings effect refers to the observation that: (pg 483)

A. risk-adjusted returns are unrelated to price-earnings ratios.
B. risk-adjusted returns are lower, the smaller the price-earnings ratio.
C. risk-adjusted returns are lower, the larger the price-earnings ratio.
D. risk-adjusted returns are higher, the smaller the price-earnings ratio.

The area of behavioural finance suggests that investors:

A. always behave rationally, which supports the EMH.

B. never behave irrationally and the market is not efficient.
C. may not behave rationally and this limits the arbitrage opportunities of rational investors.
D. None of the given options is correct.

10.Behavioural finance rests on the propositions that some investors sometimes act irrationally and
that there are limits to arbitrage. Why are both propositions needed ? Provide examples of
behavioural biases.
11. The Xanth plans to issue $20 million of bonds with a coupon rate of 6%. The par value of $800,
semi-annual coupons and 10 years maturity. The current market interest rate of the bond is 5% per
annum. In one year, the interest rate on the bonds will be either 7.5% per annum or 4% per annum
with equal probability. Assume investors are risk neutral.

If the bonds are noncallable, what is the price of the bonds today?

- Harusnya bikin dua kali, if increase (7.5%), if decrease (4%)

*(masuk exam, understand callable and uncallable. And if callable who are the issuer group?

they will call back the bond when market interest lower from pov bond issuer so can borrow with
more efficient rate

when will bond issuer call the bond normally? when price rises or above call price or the other way
around?

*Relationship of interest and price of bonds ->inverse, int high, price decrease

Eg:

Bond price todei 600

Callable price 580 (made in advance)

Hence, issuer will call the bond (cuz higher than par)

Companies usually call when int turun becuz they can issue new bond with lower int rate

12. Explain the most frequent restructuring transactions besides mergers and takeovers

13

14. Explain what are the evidences on the costs of financial distress,,,,,,