Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Question
Chapter 11, Problem 24PS
Summary Introduction
To determine:
Whether the investor should purchase or sell the stock of XYZ that has been given score of 3 on the scale of 10.
Introduction:
Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.
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Which of the following are consistent with the efficient market hypothesis? Check all that apply.
Changes in stock prices can be accurately predicted by investors.
At the market price, the number of people who believe the stock is overvalued exactly equals the number of people who think the stock is undervalued.
A positive news release about a company will increase the value and stock price for that firm.
Some investors cite the existence of anomalies—observations that do not fit the model—as evidence that stock markets are not efficient. Which of the following are such anomalies? Check all that apply.
The best time to sell a stock is late on Wednesday or Friday, whereas the best time to buy a stock is late on Tuesday or Thursday.
The movement of stock prices of companies over time is the same as the changes in their earnings.
High returns to a stock in one period are associated with even higher returns in a later period.
There is a…
You, in analyzing a stock, find that its expected return exceeds its required return. This suggests that you think
a. the stock should be sold.
b. the stock is a good buy.
c. management is probably not trying to maximize the price per share.
d. dividends are not likely to be declared.
e. the stock is experiencing supernormal growth.
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?
Chapter 11 Solutions
Investments
Ch. 11 - Prob. 1PSCh. 11 - Prob. 2PSCh. 11 - Prob. 3PSCh. 11 - Prob. 4PSCh. 11 - Prob. 5PSCh. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Prob. 8PSCh. 11 - Prob. 9PSCh. 11 - Prob. 10PS
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