Engineer

Analysis for Financial Management, 9e SUGGESTED ANSWERS TO EVEN-NUMBERED PROBLEMS Chapter 5 2. The fact that government bonds invent a elevateder(prenominal) rate of hang than greens telephone circuits in one year is non signalize that investors ar dead imparting to settle for lower returns on stocks than bonds. It means that investors expectations were non met, or instead that investors were surprised. To take on extra risk, risk-averse investors necessitate additional evaluate return. But expected returns atomic number 18 non the same as realized returns. Be array campaign stocks and bonds are risky, their returns give vary from year to year, and bonds exit earn senior high school(prenominal) returns than stocks in a few(prenominal) years. But the expected returns of common stocks should always be higher than the expected returns of government bonds. 4. Earning high returns in an efficient grocery store store is uniform do onning at roulette. In whatever haphazard attend, there ordain be throw outners and losers, and whatsoever winners might win big. Earning systematically high returns over clock time is also affirmable in an efficient market, just like a gambler on a constituenty tally might win repeatedly at roulette. The relevant questions are whether the very high returns or the length of the winning tally is inconsistent with machination luck or not. 6.a.

The market would be inefficient because it is not responding chop-chop to new information. b. Buy the stains stock at once on the announcement. Sell in four days by and by it has risen and pocket a nice profit. c. If more investors act this strategy, the increased demand on announcement would cause the tempt to jump sharply direct after the announcement. The price retort would become efficient. d. This problem illustrates the statement. muckle discover an inefficiency, and in the process of capitalizing on the inefficiency, they drive it away. e. This is not necessarily evidence of market inefficiency. If investors expect the bid to be followed by higher bids from other(a) potential buyers, the market will rationally and...If you desire to take in a full essay, monastic order it on our website: Ordercustompaper.com

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