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LaPorta, Lakonishok, Shleifer, and Vishny (“Good News for Value Stocks,” Journal of Finance, June 1997) study the returns on stocks on the few days surrounding their quarterly earnings announcements (relative to various expected return benchmarks). They find that on average, high-B/M stocks earn 0.9% around an earnings announcement. In contrast, low-B/M stocks earn an average of -0.1% around an earnings announcement. The difference is statistically significant. Discuss whether this result is more consistent with the irrational expectations (behavioral) view, or the risk factor (efficient markets) view of the book-tomarket effect, and explain your logic.
On January 1, 2009 Herbert acquired all of the outstanding stock of Rambis for $500,000. Annual excess amortization of $20,000 resulted from this acquisition. what is the adjustment to Herbert’s Investment account and beginning Retained Earnings. wha..
Which of the following can cause a project to have multiple IRRs?
You have just received notification that you have won the $2.13 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 67 years from now. What is the present value..
You are contemplating the purchase of a one-half interest in a corporate airplane to facilitate the expansion of your business into two new geographic areas. If negative, what additional annual cash flows would be needed for the NPV to equal zero? To..
Assume you deposit $2,000 every 6 months at 10% compounded semi annually. How much will you have at the end of 10 years? If you need $40,000 for your son's education in 10 years, how much must you deposit at the beginning of each year in the bank ear..
Elizabeth is offered to buy a financial security that guarantees to pay her $10 every 2 years forever. The annual interest rate is 8%. How much would she pay for it today if the first payment will be received today? How much would she pay for it toda..
Millbridge Hospital buys its supplies in bulk and has recently switched vendors. The first purchase Millbridge made was for 500 boxes of gauze at $3.46 a box. The purchase had payment terms of 2/15 N/30. Millbridge earns four percent on its idle cash..
Clearlake does not know how many euros it will receive in the future, so it would have difficulty even if a long-term hedging method were available. How can Clearlake realistically deal with this dilemma and reduce its exposure over the long term?
Money Market Versus Call Option Hedging. You expect that inflation in the United States will be 3%, versus 5% in the United Kingdom. The expected spot rate in one year is $1.8756. The spot rate of the pound as of today is $1.8000.
Stock A has an expected rate of return of 12% and a standard deviation of returns of 40%. Stock B has an expected rate of return of 18% and variance of returns of 0.36. The correlation coefficient between the returns of Stock A and Stock B is 0.25.
Suppose that a zero coupon bond selling at $ 1,000 par has a duration of four years. If interest rates increase from 6 percent to 7 percent annually, the value of the bond will fall by what amount using Equation 6.14? Use semiannual compounding. Then..
Using the capitalized earnings method (EPS/RS), compute the estimated share values associated with each of the capital structures. Select the optimal capital structure on the basis of: Maximization of expected earnings per share.
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