Questions from General Investment

Q: The SML relationship states that the expected risk premium on a security

The SML relationship states that the expected risk premium on a security in a one-factor model must be directly proportional to the security’s beta. Suppose that this were not the ca...

Q: Respond to each of the following comments. a. If

Respond to each of the following comments. a. If stock prices follow a random walk, then capital markets are little different from a casino. b. A good part of a company’s future prospects are predicta...

Q: Which of the following would be a viable way to earn abnormally

Which of the following would be a viable way to earn abnormally high trading profits if markets are semistrong-form efficient? a. Buy shares in companies with low P/E ratios. b. Buy shares in companie...

Q: Abigail Grace has a $900,000 fully diversified portfolio.

Abigail Grace has a $900,000 fully diversified portfolio. She subsequently inherits ABC Company common stock worth $100,000. Her financial adviser provided her with the following estimates: / The co...

Q: “If the business cycle is predictable, and a stock has

“If the business cycle is predictable, and a stock has a positive beta, the stock’s returns also must be predictable.” Respond.

Q: Which of the following hypothetical phenomena would be either consistent with or

Which of the following hypothetical phenomena would be either consistent with or a violation of the efficient market hypothesis? Explain briefly. a. Nearly half of all professionally managed mutual fu...

Q: The monthly rate of return on T-bills is 1%.

The monthly rate of return on T-bills is 1%. The market went up this month by 1.5%. In addition, AmbChaser, Inc., which has an equity beta of 2, surprisingly just won a lawsuit that awards it $1 milli...

Q: A successful firm like Microsoft has consistently generated large profits for years

A successful firm like Microsoft has consistently generated large profits for years. Is this a violation of the EMH?

Q: Investors expect the market rate of return in the coming year to

Investors expect the market rate of return in the coming year to be 12%. The T-bill rate is 4%. Changing Fortunes Industries’ stock has a beta of .5. The market value of its outstanding equity is $100...

Q: Dollar-cost averaging means that you buy equal dollar amounts of

Dollar-cost averaging means that you buy equal dollar amounts of a stock every period, for example, $500 per month. The strategy is based on the idea that when the stock price is low, your fixed month...