MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
10th Edition
ISBN: 9781319467203
Author: Mankiw
Publisher: MAC HIGHER
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Chapter 18, Problem 4QQ
To determine
The
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According to the efficient markets hypothesis,a. changes in stock prices are impossible to predict from publicinformation.b. excessive diversification can reduce an investor's expected portfolioreturns.c. the stock market moves based on the changing animal spirits ofinvestors.d. actively managed mutual funds should give higher returns than indexfunds.
Robert Shiller and Eugene Fama who were jointly awarded the Nobel Prize in Economics in 2013 for their work on asset prices strongly disagree on whether
I. stocks can be over or under priced.
II. investors are rational.
III. asset bubbles exist.
Multiple Choice
Only II
I, II, and III
Only I
I and II
Only III
An agent (a financial institution or individual financial investor) that has agreed to deliver a specific asset (as yet unpossessed) to another party at a future date has:A. taken a long position.B. hedged against risk.C. entered a forward transactionD. taken a short positionE. bought an option.
Chapter 18 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
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- What is uninformed “noise” trading associated with? a. Negative autocorrelation in stock returns b. Temporary market impact c. Bid-ask bounce d. All of the above e. None of the abovearrow_forwardWhich type of financial intermediary provides individual investors with professional management of their money and diversification in order to limit the risk of investing? A. mutual funds B. insurance companies C. hedge funds D. investment banksarrow_forwardSuppose that all investors have the disposition effect. A new stock has just been issued at a price of $61, so all investors in this stock purchased the stock today. A year from now the stock will be taken over, for a price of $73 or $49 depending on the news that comes out over the year. The stock will pay no dividends. Investors will sell the stock whenever the price goes up by more than 10%. a. Suppose good news comes out in 6 months (implying the takeover offer will be $73). What equilibrium price will the stock trade for after the news comes out, that is, the price that equates supply and demand? b. Assume that you are the only investor that does not suffer from the disposition effect and your trades are small enough to not affect prices. Without knowing what will actually transpire, what trading strategy would you instruct your broker to follow? .... a. Suppose good news comes out in 6 months (implying the takeover offer will be $73). What equilibrium price will the stock trade…arrow_forward
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