Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 31, Problem 9E
To determine
To explain:
The effect on prices of bond when the stock prices are expected to increase by 10% and the cross-price
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Hello. Just need some guidance on the following questions.
Analyze reasons why good news for the economy (long term) isn’t always good news for stock and other financial markets (short term).
Evaluate the assumption that stock price movements are purely random (the random walk theory), describing what a random walk is.
Discuss the strengths and weaknesses of the efficient markets hypothesis.
Explain the rationale for buying stocks when stock prices are not predictable, noting what kind of strategies would be useful for investing $100,000.
Risk premiums on corporate bonds are usually anticyclical; that is, they decrease during business cycle expansions and increase during recessions. Why is this so?
Which of the following apply to stocks? Select all that apply.
Earn gains from dividends
Earn gains from interest
Prices are determined by present value
Prices are determined by supply and demand
Have primary and secondary markets
Have only primary markets
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- Effects on shares and financial markets is a macroeconomic issue that was brought about by the impact of COVID-19. What government policy should be implemented to fix this issue?arrow_forwardConsider two firms (a) Firm A has profits twice as large as Firm B's profits. The firms do not differ in any other way. Which firm's stock should you buy if Firm A's stock price is PA = $50 and Firm B's stock price is PB = $30? What would you expect to happen to stock prices in equilibrium? Explain your answer (b) Suppose stock prices are in equilibrium. Explain what happens to the stock prices of these two firms if the interest rates increase? (c) Suppose stock prices are in equilibrium. Does the Efficient Market Hypothesis suggest to %3D buy one stock or the other stock? Explain.arrow_forwardSuppose you expect a stock to pay a dividend of $10 every year forever and the discount rate is fixed at 5%. What would expect the price of that stock to be? What happens to the price of the stock if the discount rate falls to 2%? (Note: this exercise might help explain why the stock market is so high these days, despite the COVID-19 pandemic and lackluster economy.)arrow_forward
- Suppose everyone expects investment to rise sharply in three months. How would this expectation be likely to affect bond prices?arrow_forwardWhat will happen in the bond market if the government imposes a limit on the amount of daily transactions?Which characteristic of an asset would be affected? How might it affect the interest rates?arrow_forwardThe National Pension Fund pays no taxes on its capital gains or on its dividend and interest income. Would it be illogical for it to have low-dividend, high growth stocks in its portfolio? Would it be illogical to have government bonds (which are safe but offer a low interest) in its portfolio?arrow_forward
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