EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9781305465626
Author: Blinder
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 5DQ
To determine
Herd behaviour.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Under what conditions will behavioral biases impact stock returns?
under what conditions will behavioral biases NOT impact stock returns?
Consider 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.
Is maximizing a firm’s profits always identical to maximizing the firm’s stock market value?
Knowledge Booster
Similar questions
- The efficient market hypothesis argues that it is easier to predict changes in the level of prices of shares since everyone has access to the same set of information. True or False?arrow_forwardYou have two roommates who invest in the stock market. a. One roommate says she buy shares only in companies that everyone believes will experience big increases in profits in the future. How do you suppose the price-earnings ratio of these companies compares to the price-earnings ratio of other companies? What might be the disadvantage of buying shares in these companies? b. Another roommate says she only buys shares in companies that are cheap, which she measures by low price-earnings ratios. How do you suppose the earnings prospects of these companies compare to those of other companies? What might be the disadvantage of buying shares in these companies?arrow_forwardHow the valuation of stocks may be affected by: Economic Growth, Expected Inflation or Exchange Ratesarrow_forward
- Provide an example of an asset market that you think could be an economist's definition of market bubble and explain why?arrow_forwardHow would each of the following actions be expected to affect shareholder wealth?a. Southern Company adopts fuel-switching technology at its largest power plants.b. Ford Motor Company pays $2.5 billion for Jaguar.c. General Motors offers large rebates to stimulate sales of its automobiles.d. Rising interest rates cause the required returns of shareholders to increase.e. Import restrictions are placed on the French competitors of Napa wineries.f. There is a sudden drop in the expected future rate of inflation.g. A new, labor-saving machine is purchased by Wonder Bread and results in the layoff of 300 employees.arrow_forwardFortune magazine regularly publishes a list of the “most respected” companies. According to the efficient markets hypothesis, if you restrict your stock portfolio to these companies, will you earn a better-than-average return? Explain.arrow_forward
- Explain how and why market behavior affects the financial statements at various times throughout the calendar year for your organizationarrow_forwardWill there be an effect on interest rates if brokeragecommissions on stocks fall? Explain your answerarrow_forwardConsider a new business that invests $20 million into a plant to manufacture loaves of bread. The market for bread is say around 100 million loaves and the new firm expects that it will be able to obtain a market share of around 5%. At that level of production, the total cost of production is $10 million. Let us say that it targets a 20% return on its investment. What should the price of a loaf of bread be? Use the principle of target rate of return pricing. If the mark-up rate is 10% what will the full-cost price be?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Microeconomics: Principles & PolicyEconomicsISBN:9781337794992Author:William J. Baumol, Alan S. Blinder, John L. SolowPublisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Microeconomics: Principles & Policy
Economics
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning