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Analysis for Financial Management, 9e SUGGESTED ANSWERS TO EVEN-NUMBERED PROBLEMS Chapter 5 2. The fact that government bonds muddle a elevateder(prenominal) rate of communicate than harsh telephone circuits in one year is non manoeuver that investors ar dead automatic to settle for lower returns on stocks than bonds. It means that investors expectations were non met, or or else that investors were surprised. To take on supererogatory risk, risk-averse investors necessitate additional judge return. But expected returns are non the same as realized returns. Be forces campaign stocks and bonds are risky, their returns allow for vary from year to year, and bonds provide earn soaringer(prenominal)(prenominal) returns than stocks in a couple of(prenominal) 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 securities industry store is handle experience onning at roulette. In all haphazard surgical procedure, there leave be throw outners and losers, and nigh winners might win big. Earning consistently high returns over m is also affirmable in an efficient merchandise, just like a gambler on a probabilityy runnel might win repeatedly at roulette. The relevant questions are whether the very high returns or the length of the winning streak is inconsistent with machination luck or not. 6.a.

The market would be inefficient because it is not responding promptly to new information. b. Buy the organizes stock outright on the announcement. Sell in four days aft(prenominal) it has risen and pocket a nice profit. c. If more investors act this strategy, the increased demand on announcement would cause the run across to jump sharply like a shot after the announcement. The price answer would become efficient. d. This problem illustrates the statement. batch 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 early(a) potential buyers, the market pass on rationally and...If you desire to spoil a full essay, holy order it on our website: Ordercustompaper.com

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