Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 14, Problem 22CQ
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Question 2
Kamet is an investment fund that invests on the Ghana Stock Exchange. In recent times the
economy has gone through four different cycles which analyst believe may be repeated in the
years ahead. Kamet is reviewing its investment strategy and is looking for the best way to make
good returns for its clients. The returns on three assets selected by Kamet are provided below:
Business Cycle
Normal
Boom
Near Recession
Recession
You are required to:
Probability
0.30
0.40
0.10
????
Unilever
40%
20%
20%
12%
Starwin
40%
45%
30%
50%
Anglogold
30%
40%
15%
30%
i. Compute the expected return and risk of each asset and advise Kamet as to which
asset to invest more funds in on the basis of:
a) expected return on the assets
b)
riskiness of the assets (Hint: compute the coefficient of variation of each asset
and select the asset with the lowest coefficient of variation; CV=.
8
E(R)
You live in a world where three future states are possible: Boom, Normal and Recession. See the probablities of these states in the attched table. Consider a stock which you expected to have the following returns
in these states of the economy.
State Probability
Boom
Normal
Recession
O 9.05%
O 7.35%
What is the expected return on an investment in this stock?
6.00%
25%
55%
20%
O 3.75%
State
Expected
Return
0.15
0.08
-0.04
About market efficiency, which of the following statements is right:a. In a highly efficient stock market, it is almost impossible for an investor to make profit from the stock market.b. In a highly efficient stock market, some smart investors can definitely beat the market even without the inside information. c. An investor can make profit by buying the stock of free Inc. since it just reported that the half-year profit doubled with respect to that during the same period in the last year. d. The stock prices of big companies are closer to their intrinsic values than those of small companies since more people follow those big companies, whereas few people follow those small companies.
Chapter 14 Solutions
Corporate Finance
Ch. 14 - Prob. 1CQCh. 14 - Prob. 2CQCh. 14 - Efficient Market Hypothesis Which of the following...Ch. 14 - Market Efficiency Implications Explain why a...Ch. 14 - Efficient Market Hypothesis A stock market analyst...Ch. 14 - Semistrong Efficiency If a market is semistrong...Ch. 14 - Efficient Market Hypothesis What are the...Ch. 14 - Prob. 8CQCh. 14 - Prob. 9CQCh. 14 - Efficient Market Hypothesis For each of the...
Ch. 14 - Technical Analysis What would a technical analyst...Ch. 14 - Prob. 12CQCh. 14 - Prob. 13CQCh. 14 - Efficient Markets A hundred years ago or so,...Ch. 14 - Efficient Market Hypothesis Aerotech, an aerospace...Ch. 14 - Prob. 16CQCh. 14 - Prob. 17CQCh. 14 - Efficient Market Hypothesis Newtech Corp. is going...Ch. 14 - Prob. 19CQCh. 14 - Efficient Market Hypothesis The Durkin Investing...Ch. 14 - Efficient Market Hypothesis Your broker commented...Ch. 14 - Efficient Market Hypothesis A famous economist...Ch. 14 - Efficient Market Hypothesis Suppose the market is...Ch. 14 - Prob. 24CQCh. 14 - Prob. 25CQCh. 14 - Efficient Market Hypothesis Assume that markets...Ch. 14 - Prob. 27CQCh. 14 - Evidence on Market Efficiency Some people argue...Ch. 14 - Prob. 1QAPCh. 14 - Prob. 2QAPCh. 14 - Prob. 3QAPCh. 14 - Prob. 4QAPCh. 14 - Prob. 1MCCh. 14 - Prob. 2MCCh. 14 - Prob. 3MC
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