PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 13, Problem 3PS
- (a) Are random numbers.
- (b) Follow regular cycles.
- (c) Differ by a random number.
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A “random walk” occurs when:a. Stock price changes are random but predictable.b. Stock prices respond slowly to both new and old information.c. Future price changes are uncorrelated with past price changes.d. Past information is useful in predicting future prices.
Evidence suggests that there may be _______ momentum and ________ reversal patterns in stock price behavior.
A) Short-run, short-run
B) Long-run, long-run
C) Long-run, short-run
D) Short-run, negligible
If markets are efficient, what should be the correlation coefficient between stock returns for two nonoverlapping time periods?
Chapter 13 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 13 - Market efficiency True or false? The...Ch. 13 - Prob. 2PSCh. 13 - Market efficiency Which (if any) of these...Ch. 13 - Prob. 4PSCh. 13 - Market efficiency How would you respond to the...Ch. 13 - Market efficiency Respond to the following...Ch. 13 - Prob. 7PSCh. 13 - Prob. 8PSCh. 13 - Market efficiency evidence Which of the following...Ch. 13 - Prob. 10PS
Ch. 13 - Prob. 11PSCh. 13 - Prob. 12PSCh. 13 - Market efficiency implications What does the...Ch. 13 - Prob. 14PSCh. 13 - Prob. 15PSCh. 13 - Abnormal returns Here are alphas and betas for...Ch. 13 - Prob. 18PSCh. 13 - Behavioral finance True or false? a. Most managers...Ch. 13 - Prob. 20PSCh. 13 - Prob. 21PSCh. 13 - Prob. 22PS
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- What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.arrow_forwardExplain why short-term stock price and market movements appear to be difficult to predict with any accuracy. (Hint-market efficiency)arrow_forwarda. Explain how and why an increase in each of the following affects the prices of both call and putoptions, holding all other variables constant: i. The current stock price ii. The strike pricearrow_forward
- The constant growth DCF model used to evaluate the prices of common stocks isconceptually similar to the model used to find the price of perpetual preferred stock or other perpetuities. True or False?arrow_forwardWhich of the following statements is INCORRECT about the Random Walk Hypothesis? A) It assumes successive returns are statistically independent. B) It assumes there is no correlation between the returns in one period and the next. C) It assumes the distribution of returns in all periods is identical. D) It assumes historical share prices can be used to predict future price movements.arrow_forwardStocks A and B have the following data. Assuming the stock marketyls efficient and the stocks are in equilibrium, which of the following statements is CORRECT? \table[[,A,Barrow_forward
- To what extent does investor mood contribute to the observed fluctuations in stock prices? Explainarrow_forwardDetermine whether stock prices are affected more by long-term or short-term performance. Provide an example of the effect that supports your claim.arrow_forwardHow GARCH (generalized ARCH model) model is applied to Stock Price Volatility?arrow_forward
- Given the following anomalies, which is inconsistent with weak-form market efficiency? Day-of-the-week effect. Value effect. Earnings surprise. Stock split effect. All of the above answers are inconsistent with weak-form market efficiency. None of the above answers is consistent with weak-form market efficiency.arrow_forwardWhich of the following most accurately describes fundamental analysis? a. Makes use of trend chart patterns to determine intrinsic value of security.b. Makes use of information derived from stock prices patterns and movementsc. Makes use of P/E ratiod. Makes use of bottom-up approache. All of the abovef. None of the abovearrow_forwardAccording to the weak-form efficient market hypothesis, which of the following types of information are fully reflected in stock prices? Group of answer choices insider information earnings announcements and rates of return dividend and earnings announcements rates of return, trading volume, and news about the economy past price and volume dataarrow_forward
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