• 1) If markets are efficient, what should be the correlation coefficient between stock returns for two nonoverlapping time periods?

• 4) Steady Growth Industries has never missed a dividend payment in its 94-year history. Does this make it more attractive to you as a possible purchase for your stock portfolio?

• 8) If prices are as likely to increase as decrease, why do investors earn positive returns from the market on average?

• 9) Which of the following (hypothetical) observations would most contradict the proposition that the stock market is weakly efficient? Explain.

1. Over 25% of mutual funds outperform the market on average.
2. Insiders earn abnormal trading profits.
3. Every January, the stock market earns abnormal returns.

• 12) Which of the following statements are true if the efficient market hypothesis holds?

1. It implies that future events can be forecast with perfect accuracy.
2. It implies that prices reflect all available information.
3. It implies that security prices change for no discernible reason.
4. It implies that prices do not fluctuate.

• 13) Respond to each of the following comments.

1. If stock prices follow a random walk, then capital markets are little different from a casino.
2. A good part of a company's future prospects are predictable. Given this fact, stock prices can't possibly follow a random walk.
3. If markets are efficient, you might as well select your portfolio by throwing darts at the stock listings in The Wall Street Journal.