Assume all firms have the same expected dividends. If they have different expected returns, how will their market values and expected returns be related? What about the relation between their dividend yields and expected returns? (Select the best choice below.) O A. Firms with high expected returns will have high market values and low dividend yields. O B. Firms with low expected returns will have low market values and low dividend yields. OC. Firms with low expected returns will have high market values and low dividend yields. O D. Firms with high expected returns will have high market values and high dividend yields.

Assume all firms have the same expected dividends. If they have different expected returns, how will their market values and expected returns be related? What about the relation between their dividend yields and expected returns? (Select the best choice below.) O A. Firms with high expected returns will have high market values and low dividend yields. O B. Firms with low expected returns will have low market values and low dividend yields. OC. Firms with low expected returns will have high market values and low dividend yields. O D. Firms with high expected returns will have high market values and high dividend yields.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Would a firm that has many good investment opportunities be likely to have ahigher or a lower dividend payout ratio than a firm with few good investment opportunities?Explain.
Ceteris paribus, current financial market returns will increase as _____. Group of answer choices a. the uncertainty about the productivity of capital goods increases and people become more risk averse b. the uncertainty about the productivity of capital goods increases and people become less risk averse c. the uncertainty about the productivity of capital goods decreases and people become more risk averse d. the uncertainty about the productivity of capital goods decreases and people become less risk averse
The efficient markets hypothesis identifies three forms of market efficiency. (a) You observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency? (b) If the weak form of the efficient market hypothesis is valid, must the strong form also hold? Conversely, does strong form efficiency imply weak form efficiency? (c) Stock XYZ, which traded for several months at a price of K72, and then declines to K65. if the stock eventually begins to increase in price, K72 is considered a resistance level because investors who bought originally at K72 will be eager to sell their shares as soon as they can break even on their investment. If everyone in the market believes in resistance levels, why do these beliefs not become self-fulfilling prophecies?
What does beta represent? Multiple Choice Beta is a measure of covariance standardized by the variance of the market. This adjusts the risk of the firm to be relative to the risk of the market. Beta is the extra income earned on an investment that cannot be explained by systematic risk or unsystematic risk. Beta is related to the return on risk-free assets. Beta is always positive or O, it cannot be negative because stock prices cannot be negative.
In financial markets, if there is an untapped profit opportunity, arbitrageurs will realize it and it will disappear. What does the EMH hypothesis say about the consequences of these arbitrageurs on prices?
Evaluate the following statement: If the financial market is frictionless and complete, the asset with higher expected return also exhibits higher return volatility (i.e., standard deviation of returns).
Suppose we observe from market data that, for a given non-dividend paying stock, F, ± Soer. What might explain the inequality in this relationship (i.e. why don't we observe Fo = Soer") if markets are efficient? Hint: try to identify real-world market frictions that might cause cases where F, + S,e! does not result in arbitrage opportunities rT
If prices are as likely to increase as decrease, why do investors earn positive returns from the market on average?
Which of the following statements is CORRECT? a. The SML shows the relationship between companies' required returns and their diversifiable risks. The slope and intercept of this line cannot be influenced by a firm's managers, but the position of the company on the line can be influenced by its managers. b. Suppose you plotted the returns of a given stock against those of the market, and you found that the slope of the regression line was negative. The CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming investors expect the observed relationship to continue on into the future. c. If investors become less risk averse, the slope of the Security Market Line will increase. d. If a company increases its use of debt, this is likely to cause the slope of its SML to increase, indicating a higher required return on the stock. e. The slope of the SML is determined by the value of beta.
An investor takes as large a position as possible when an equilibrium price relationship is violated. This is an example of:a. A dominance argument.b. The mean-variance efficient frontier.c. Arbitrage activity.d. The capital asset pricing model.
Which yield curve theory believes there are spots that are higher or lower because of a lack of arbitrage? Liquidity preference theory b. Expectation theory Preferred habitat theory a. С. d. Market fluctuation theory
As risk aversion increases A. a firm's beta will increase. B. investors' required rate of return will increase. C. a firm's beta will decrease. D. investors' required rate of return will decrease.

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