Discuss the concept of efficient capital market

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Problem (a) If the economy recovers next year, analysts expect Stock X's return for the year to be 20%; if the economy does not recover, analysts expect Stock X's return for the year to be -5%. If there is a 40% chance that the economy will recover and a 60% that it will not, what is the expected return on Stock X for next year? Compute the variance and standard deviation of the return on Stock X for next year.

Problem (b) Define efficient capital market and discuss the arguments used to support the concept of efficient capital market. Describe and contrast 3 forms of the efficient market hypothesis (EMH) theory.

Reference no: EM132563961

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