Questions from Corporate Finance

Q: Assume the economy consisted of three types of people. 50%

Assume the economy consisted of three types of people. 50% are fad followers, 45% are passive investors (they have read this book and so hold the market portfolio), and 5% are informed traders. The po...

Q: Explain what the size effect is.

Explain what the size effect is.

Q: Assume all firms have the same expected dividends. If they have

Assume all firms have the same expected dividends. If they have different expected returns, how will their market values and expected returns be related? What about the relation between their dividend...

Q: Each of the six firms in the table below is expected to

Each of the six firms in the table below is expected to pay the listed dividend payment every year in perpetuity. a. Using the cost of capital in the table, calculate the market value of each firm....

Q: Assume that the CAPM is a good description of stock price returns

Assume that the CAPM is a good description of stock price returns. The market expected return is 7% with 10% volatility and the risk-free rate is 3%. New news arrives that does not change any of these...

Q: Consider the following stocks, all of which will pay a liquidating

Consider the following stocks, all of which will pay a liquidating dividend in a year and nothing in the interim: a. Calculate the expected return of each stock. b. What is the sign of correlation b...

Q: In Problem 20, assume the risk-free rate is 3

In Problem 20, assume the risk-free rate is 3% and the market risk premium is 7%. a. What does the CAPM predict the expected return for each stock should be? b. Clearly, the CAPM predictions are not e...

Q: See Table 2.5 showing financial statement data and stock price

See Table 2.5 showing financial statement data and stock price data for Mydeco Corp. a. How did Mydeco’s book debt-equity ratio change from 2012 to 2016? b. How did Mydecoâ...

Q: Explain how to construct a positive-alpha trading strategy if stocks

Explain how to construct a positive-alpha trading strategy if stocks that have had relatively high returns in the past tend to have positive alphas and stocks that have had relatively low returns in t...

Q: If you can use past returns to construct a trading strategy that

If you can use past returns to construct a trading strategy that makes money (has a positive alpha), it is evidence that market portfolio is not efficient. Explain why.