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1. Why would a follower of the Efficient Market Hypothesis (EMH) believe that even if many investors exhibit the behavioral biases discussed in the book, security prices may still be set efficiently?
2. What types of factors might inhibit the ability of rational investors to profit from any “pricing errors” that are a result of actions taken by “behavioral investors”?
3. Do you agree, as do some followers of behavioral finance, that indexing is the ideal investment strategy for most investors?
4. What does “data mining” mean, and why must technical analysts take care not to engage in it?
5. Assume that yesterday the Dow Jones Industrial Average closed up 54 points, and that there were 1,704 issues declining in price while 1,367 issues increased in price. Why would a technical analyst be concerned even though the market index rose for the day?
Should you also ask the associate for similar information on car manufacturers? On truck manufacturers? On automobile companies? On your firm in particular?
Consider a 4% coupon 30-year option-free bond selling at 72.3244 and yielding 6%. If the yield is decreased by 20 basis points, the price would increase to 74.5492. If the yield increases by 20 basis points, the price would decrease to 70.1988. Calc..
As of this morning, your firm had a ledger balance of $775 with no outstanding deposits or checks. Today, your firm deposited six checks in the amount of $79 each and wrote a check in the amount of $330. What is the amount of the collection float as ..
BOND VALUATION Madsen Motors’s bonds have 23 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 9%; and the yield to maturity is 11%. What is the bond’s current market price?
Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the required return for the overall stock market?
A firm is planning on paying its first dividend of $2 three years from today. After that, dividends are expected to grow at 6% per year indefinitely. What is the fair value of this stock if the required rate of return is 14%?
What would be the total return of the bond in dollars? What would be the total return of the bond in percent?
Use the weighted average cost of capital method to calculate the value of the company. What is the value of the company’s equity?
Explain how incorporating will affect the Richards family's ability to transfer ownership to their children. Justify Jake's concerns with hiring professional management.
Suppose the A company bond paid interest semiannually. What would its value be if the yield is 12%?
Williamson, Inc., has a debt–equity ratio of 2.57. The company's weighted average cost of capital is 9 percent, and its pretax cost of debt is 7 percent. The corporate tax rate is 40 percent. What is the company’s cost of equity capital?
What is meant by the liquidity provision function? Describe the basic structure of the foreign exchange market.
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