Questions from Corporate Finance

Q: Explain why you might expect stocks to have nonzero alphas if the

Explain why you might expect stocks to have nonzero alphas if the market proxy portfolio is not highly correlated with the true market portfolio, even if the true market portfolio is efficient.

Q: Explain why if some investors are subject to systematic behavioral biases,

Explain why if some investors are subject to systematic behavioral biases, while others pick efficient portfolios, the market portfolio will not be efficient.

Q: Explain why an employee who cares only about expected return and volatility

Explain why an employee who cares only about expected return and volatility will likely underweight the amount of money he invests in his own company’s stock relative to an investor who does not work...

Q: Using the factor beta estimates in the table shown here and the

Using the factor beta estimates in the table shown here and the monthly expected return estimates in Table 13.1, calculate the risk premium of General Electric stock (ticker: GE) using the FFC factor...

Q: You are currently considering an investment in a project in the energy

You are currently considering an investment in a project in the energy sector. The investment has the same riskiness as Exxon Mobil stock (ticker: XOM). Using the data in Table 13.1 and the table abov...

Q: You work for Microsoft Corporation (ticker: MSFT), and you

You work for Microsoft Corporation (ticker: MSFT), and you are considering whether to develop a new software product. The risk of the investment is the same as the risk of the company. a. Using the da...

Q: Suppose the CAPM equilibrium holds perfectly. Then the risk-free

Suppose the CAPM equilibrium holds perfectly. Then the risk-free interest rate increases, and nothing else changes. a. Is the market portfolio still efficient? b. If your answer to part a is yes, expl...

Q: You know that there are informed traders in the stock market,

You know that there are informed traders in the stock market, but you are uninformed. Describe an investment strategy that guarantees you will not lose money to the informed traders and explain why it...

Q: Use the data in Problem 8 to determine the change, from

Use the data in Problem 8 to determine the change, from 2012 to 2015, in GE’s a. book debt-equity ratio. b. market debt-equity ratio. Data from Problem 8: In early 2012, General Electric (GE) had a...

Q: What are the only conditions under which the market portfolio might not

What are the only conditions under which the market portfolio might not be an efficient portfolio?