Part I. (5 questions; 1 or 2 points each; True/False Questions) Decide whether each of the following statements is true or false. If false, change…

Part I. (5 questions; 1 or 2 points each; True/False Questions) Decide whether each of the following statements is true or false. If false, change the incorrect parts to make them true. DO NOT NEGATE THE FALSE SENTENCES.

1. According to the weak-form efficient market hypothesis, investors can take advantage of historical information.

2. The cyclical indicator approach covers all important major economic sectors including the service sector and import-exports.

3. The higher the ROE, the higher the market capitalization rate.

4. When an increase in the inflation growth is expected, the required rate of return would generally decrease.

5. Stock prices reflect past earnings, dividends, and interest rates.

Part II. (10 questions; 1 point per blank; Short Answers) Choose the answers that best complete the following sentences.

6. ________ industries will most likely excel when the economy is at the peak; but when the economy is at the trough _______ industries will most likely be the best choice for investment.

7. Based on the constant growth dividend discount model, PE ratio tends to be lower if inflation is _______, because inflation affects __________ to become higher.

8. The relationship between “market capitalization rate” and “cost of equity” would be similar to that between “plowback ratio” and “________ ratio”.

9. One of the most widely used expansionary fiscal policy tools is ________ budget deficits.

10. If interest rates _______ due to an increase in inflation and corporate earnings _______, stock prices might stay fairly stable.

11. If the Federal Reserve pursues a contractionary monetary policy, interest rates will ________ and inflation will ________.

12. According to the efficient market hypothesis, stock prices follow a _________ walk, and stock prices will adjust _________ when new information arrives.

13. The difference between the interest rate and the inflation rate reflects the ___________ return.

14. ____________________ are composed of economic indices that usually reach peaks or troughs before the corresponding movements in economic activities.

15. By _________ government bonds, the Federal Reserve absorbs excess liquidity from the market

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