Historically small firm stocks have earned higher returns than large firm stocks. When viewed in the context of CAPM theory, this suggests that ____________. Group of answer choices small firms are better run than large firms government subsidies available to small firms produce effects that are discernible in stock market statistics small firms must be systematically riskier than large firms small firms are mis-priced

Historically small firm stocks have earned higher returns than large firm stocks. When viewed in the context of CAPM theory, this suggests that ____________. Group of answer choices small firms are better run than large firms government subsidies available to small firms produce effects that are discernible in stock market statistics small firms must be systematically riskier than large firms small firms are mis-priced

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 11MC

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Which is true in relation to stock market efficiency? A.Market Price and Intrinsic value are inputs in determining whether a share is overvalued or undervalued B. If markets are truly efficient, each share prices should have a high deviation from its intrinsic value C. Intrinsic Value is readily observed from the stock market daily reports D. Large companies which is followed by many analyst are generally considered as highly inefficient
The efficient markets hypothesis identifies three forms of market efficiency. (a) You observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency? (b) If the weak form of the efficient market hypothesis is valid, must the strong form also hold? Conversely, does strong form efficiency imply weak form efficiency? (c) Stock XYZ, which traded for several months at a price of K72, and then declines to K65. if the stock eventually begins to increase in price, K72 is considered a resistance level because investors who bought originally at K72 will be eager to sell their shares as soon as they can break even on their investment. If everyone in the market believes in resistance levels, why do these beliefs not become self-fulfilling prophecies?
Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will Based on your understanding of the uses and limitations of ROE, a rational investor is likely to prefer an investment option that has: O High ROE and high risk O High ROE and low risk increase. Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a comparative analysis for the current year, you would: O Compare the firm's financial ratios with other firms in the industry for the current year Compare the firm's financial ratios for the current year with its ratios in previous years You decide also to conduct a qualitative analysis…
Which of the following statements is incorrect? Select one: A. It is possible for markets to be efficient with respect to some information and inefficient with respect to other information B. It is possible for some markets to be more efficient than others C. The market is likely to be more efficient with respect to companies where there is greater analyst following D. The market is totally efficient with respect to companies providing regular dividends to investors
You are considering a sector-neutral value factor strategy where you buy the cheapest stocks (lowest P/Z) and short-sell the most expensive stocks (highest P/Z) within an industry. Stocks are value weighted on both the long and the short side. In this case, O A. You are overweighting certain industries and underweighting other industries (relative to the market portfolio) depending on the average P/Z ratio of that industry. O B. The weight invested in each industry is (roughly) proportional to the weight of that industry in the market portfolio. O. You are overweighting certain industries and underweighting other industries (relative to the market portfolio) depending on the %earnings growth rate of that industry. O D. Each industry receives equal weight O E. You are overweighting small stocks relative to large stocks the market portfolio.
Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company’s ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will increase. Based on your understanding of the uses and limitations of ROE, a rational investor is likely to prefer an investment option that has: High ROE and high risk High ROE and low risk
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Would a firm that has many good investment opportunities be likely to have ahigher or a lower dividend payout ratio than a firm with few good investment opportunities?Explain.
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"Address the limitations of traditional methods such as CAPM (Capital Asset Pricing Model) andDiscounted Cash Flow Analysis in valuing a company's stock price in non - stationary marketconditions. Particularly, discuss the consistency of the beta coefficient in determining the cost ofcapital and the selection of the risk - free rate. Also, evaluate how these traditional models can orcannot integrate non-financial factors (e. g., company management, brand value, industry trends).Lastly, discuss the alternative models used in stock valuation and the advantages and disadvantagesof these models compared to traditional methods."