Match the term with the example or definition.

• A Stockholder

• Dividends

• To determine the value of a stock today using the generalized dividend valuation model.

• A key assumption in the Gordon growth.

• The Federal Reserve raises interest rate.

• Adaptive expectation.

• Rational expectation

• Unexploited profit opportunities.

• The efficient market hypothesis.

• A short sale.

1. A theory that assumes change in expectations adjust quickly (almost on hourly basis) based on past data and predictions.

2. One needs to use the required return on investments as the discount factor.

3. Dividends grow at a constant rate forever.

4. May fail if people are unaware of some available relevant information.

5. Will likely raise the denominator in the Gordon growth model.

6. Set by the board of directors of the firm.

7. A theory that assumes changes in expectations will occur slowly over time.

8. Investors are likely to accept a lower required rate of return from investors equity.

9. Involves a potential for unlimited loss.

10. May be eliminated without the need for the arbitrageur to assume any risk.

11. Will not be eliminated without the arbitrageur assuming some risk.

12. Forecast using all available information that leads to perfectly accurate prediction all the time

13. Ensures the investor is making a profit or at least is able to recover his or her initial investments.

14. Owns an interest in the corporation equal to the percentage of outstanding shares he/she owns.

15. Implies that stock prices should follow a random walk making their future unpredicatble