If Stock Prices Are In-Line with Their Fundamental Determinants and Profit

question 23

Multiple Choice

If stock prices are in-line with their fundamental determinants and profit expectations do not change, then a change in the interest rate by one percentage point from 10% to 11%

• A)will change the stock price by exactly ten percent regardless of the expected distribution of the earnings over time.
• B)will change the stock price by less than ten percent regardless of the expected distribution of the earnings over time.
• C)will change the stock price by more than ten percent regardless of the expected distribution of the earnings over time.
• D)will change the stock price by more or less than ten percent depending on the expected distribution of the earnings over time.

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Definitions:

Project

A planned set of interrelated tasks to be executed over a fixed period and within certain costs and other limitations.

Overconfidence

A cognitive bias where an individual's subjective confidence in their judgments and abilities is greater than their objective accuracy.

Algorithms

Step-by-step procedures or formulas for solving a problem or accomplishing a specific task, often used in computing and mathematics.

Confirmation Bias

The tendency to search for, interpret, and remember information in a way that confirms one's preconceptions, leading to statistical errors.