Question

If financial markets are semi-strong form efficient, all investors can effectivley select stocks for their portfolio by throwing darts at the Wall Street Journal stock page. Any stock selected by dart throwing will be just as good an investment as stocks in a professionally-developed portfolio.

a. This is false because if you pick stocks via darts, investors may not up with a desirable risk-return combination.

b. This is false because professionals can guarantee higher portfolio performance given the same level of risk.

c. This is false because the markets are primarily dominated by institutional investors with deep pockets.

d. This is true because in a semi-strong form efficient stock market, all portfolios should earn the market rate of return.

e. This is true because semi-strong form efficiency means that all stocks are correctly priced -- given publicly available information.

Answer #1

The correct answer is

a.This is false because if you pick stocks via darts, investors may not up with a desirable risk-return combination.

Explanation:

Professionals are having experience about market histories. If we select via just throwing darts, it is possible that we select all the riskiests stocks which do not perform even in the strong and efficient market to come.

Professionals select stocks by managing risks i.e. selecting both high and low risk stocks in a neutral way and thus our average return on capital remains higher than selecting stocks by throwing dart.

Assume that markets are weak-form efficient, but not semi-strong
form or strong form efficient. Which of the following statements is
most correct?
a. Each common stock has an expected return equal to that of the
overall market.
b. Bonds and stocks have the same expected return.
c. Investors can expect to earn super-normal returns if they
have access to public information.
d. Investors may be able to earn super-normal returns if they
have access to information that has not been...

Most academic research supports markets as
efficient.
not at all
weak form
strong form
semi-strong form

If markets are semi-strong form efficient, do value stocks
affirm or contradict the CAPM? Be specific about the relationship
between the theory’s predictions and what we observe in the
historical data. Hint: think about the betas.

Which of the following is an example that support semi-strong
form efficient markets?
A.) Post earnings announcement drift
B.) the return performance of US mutual funds
C.) Royal Dutch and Shell Price Ratio of 60/40

The current literature generally concludes that the share
markets in the developed countries are semi-strong form efficient
but not strong form efficient. Which of the following statements is
consistent with the finding?
Select one:
a. Fundamental analysis will not yield any return as the current
share price reflects all publicly available information.
b. Technical analysis is still useful and gives the investor an
advantage over others.
c. The current share price reflects both public and private
information.
d. Insider trading...

8)
a) Systematic risk is diversifiable. T or F?
b) Strong form efficient markets incorporate all information,
except for insider knowledge. T or F?

6) Strong-form efficient markets theory proclaims that ________.
A) one can chart historical stock prices to predict future stock
prices such that you can identify mispriced stocks and routinely
outperform the market B) one can exploit publicly available news or
financial statement information to routinely outperform the market
C) current prices reflect the price and volume history of the
stock, all publicly available information, and all private
information D) current prices reflect the price and volume history
of the stock,...

8. (5) True or false or Uncertain. Explain briefly.
By the CAPM, stocks with the same beta have the same
variance
If CAPM holds, α should be zero for all assets.
Optimal portfolios should exclude individual assets whose
expected return and risk (measured by its standard deviation) are
dominated by other available assets.
A stock with high standard deviation may contribute less to
portfolio risk than a stock with lower standard deviation.
Diversification reduces the expected return on the portfolio...

QUESTION 1
Under the CAPM, investors require a rate of return that is
proportional to the volatility of each asset.
True
False
QUESTION 2
The simple average of all equity betas in a market must equal
exactly 1, by construction.
True
False
QUESTION 3
All assets and portfolios that plot on the Capital Market Line
have returns that are perfectly positively correlated with the
market portfolio.
True
False
QUESTION 4
A firm that operates in rural areas, and is more...

Question 3
Consider the following two investors’ portfolios consisting of
investments in four stocks:
Stock Beta Jack's Portfolio Nelson's Portfolio A 1.3 $2,500 $10,000
B 1.0 $2,500 $5,000 C 0.8 $2,500 $5,000 D -0.5 $2,500 $2,500
Portfolio Expected Return 10% 9%
(a)
Calculate the beta on portfolios of Jack and Nelson
respectively.
(b) Assuming that the risk-free rate is 4% and the
expected return on the market is 12%, determine the required return
on portfolios of Jack and Nelson respectively....

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