Describe and derive the fund seperation theorem, Corporate Finance

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Question 1:

(a) Describe the following stock market anomalies which have been documented in the finance literature:

(i) the January effect
(ii) the Size effect
(iii) the contrarian investment strategy of DeBondt and Thaler (1985)

(b) Describe and derive the Two Fund Seperation Theorem. What happens in case the borrowing and lending rates are not equal.

Question 2:

(a) What are the competing theories, which have been put forward to describe the term structure of interest rates.

(b) Distinguish between:

(i) the Capital Market Line and the Security Market Line
(ii) Technical and Fundamental analysis
(iii) the Roll Critique and the Joint Hypothesis Dilemma


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