Engineer

Analysis for Financial Management, 9e SUGGESTED ANSWERS TO EVEN-NUMBERED PROBLEMS Chapter 5 2. The fact that government bonds flummox a elevateder(prenominal) rate of return than common telephone circuits in one year is non indicate that investors be dead impulsive to settle for lower returns on stocks than bonds. It means that investors expectations were non met, or alternatively that investors were surprised. To take on additional risk, risk-averse investors necessitate additional judge return. But expected returns are non the same as realized returns. Be military campaign stocks and bonds are risky, their returns allow vary from year to year, and bonds result earn high(prenominal) returns than stocks in fewer years. But the expected returns of common stocks should always be higher than the expected returns of government bonds. 4. Earning high returns in an efficient market place store is comparable come onning at roulette. In both haphazard process, there will be throw outners and losers, and almost winners might win big. Earning consistently high returns over duration is also affirmable in an efficient market, just like a gambler on a lucky outpouring might win repeatedly at roulette. The relevant questions are whether the very high returns or the length of the winning band is inconsistent with machination luck or not. 6.a.

The market would be inefficient because it is not responding rapidly to new information. b. Buy the rumps stock instanter on the announcement. Sell in four days after it has risen and pocket a nice profit. c. If more investors pursued this strategy, the increased demand on anno! uncement would cause the determine to jump sharply immediately after the announcement. The price response would become efficient. d. This problem illustrates the statement. mint discover an inefficiency, and in the process of capitalizing on the inefficiency, they drive it away. e. This is not necessarily evidence of market inefficiency. If investors expect the bid to be followed by higher bids from other potential buyers, the market will rationally and...If you desire to get a full essay, rewrite it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper