Macroeconomics (7th Edition)
Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 6, Problem 6.1.7PA
To determine

Importance of limited liability in raising enough funds from large number of investors.

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Suppose that you have bought a total of 3400 shares of stock of a particular company. You bought 1300 shares of stock at $17 per share, 1000 shares of stock at $12 per share, and the remaining shares at $22 per share. What is the average price you paid per share of stock? (please round your answer to 2 decimal places)
Although Goldman Sachs paid Heather $110,000.00 per year, she was not satisfied with her job. She had loved going white-water rafting and skiing with her family in Utah since she was a little girl. So last year, she decided to open her own business: Family Adventures. During the summer, she takes families on different white-water trips, and in the winter, she leads clients on skiing trips. To start her business, Heather borrowed $100,000 from a bank and used $80,000.00 of her savings. Her savings earned 10% interest. At the end of the year, she wanted to know whether her new business venture was worthwhile. The table below lists her total revenue and itemized costs for Family Adventures. Annual Dollar Value $220,000.00 $140,000.00 Item Total revenue Employee wages Rent on her business office $25,000.00 Payments on bank loan Utility and gas expenses $10,000.00 $5.000.00
On the golf course, John was playing near a group of four golfers. One of the four golfers was a director of Company ABC. The director was telling the three other golfers in his group that his company made much higher profits in the past year than in the previous year. When John went back to the office after the golf game, he checked with his broker regarding the stock and found that, two weeks earlier, the company had made an announcement similar to what the director had told his friends. John went ahead to buy the stock and was very pleased that the stock earned him abnormal returns over the next month. (i) Discuss the type of information that John heard on the golf course. Appraise which one (1) of the three forms of market efficiency is most relevant to this situation. (ii) Analyse and discuss whether the above situation describes a violation of the efficient markets hypothesis.
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