All of the following statements about stock price are correct EXCEPTIn the short run (i.e., a static viewpoint), stock price reflects the weighted averageopinions of all investors in the market.In the long run (i.e., a dynamic viewpoint), stock price is determined by the opinions ofmarginal investors in the market.While different investors may have different opinions about the value of the same stock,there is only one price for the same stock.In an efficient market, the stock price may deviate from marginal investors' valuation for aprolonged period but eventually the price will converge to the value.

Stock prices change everyday by market forces. If more people want to buy a stock (demand) than sell…

Answered: All of the following statements about…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

7. Which of the following statements is FALSE? A) The market portfolio is the efficient portfolio. B) Many practitioners believe it is sensible to use the CAPM and the security market line as a practical means to estimate a stock's required return and therefore a firm's equity cost of capital. C) If we plot individual securities according to their expected return and beta, the CAPM implies that they should all fall along the CML. D) The difference between a stock's expected return and its required return according to the security market line is called the stock's alpha.
b) “There is no alpha in an efficient market”. In light of this statement, briefly describe market efficiencyand its forms and why an investor may not be able to locate stocks that provide a positive alpha(undervalued stocks) consistently. (150 – 200 words)
a. What determines stock market valuations? b. Is a stock's price primarily determined by the discounted sum of future cash flows, monetary policy, or fear and greed? c. Is market timing possible using sentiment indicators such as put/call ratios and Investor's Intelligence surveys? Please ensure to add references and citations.
Which of the following statements is correct? Multiple Choice Penny stocks are the stocks of small companies that are priced below $1 per share. Restricted stocks are shares of stock issued to executives that have limitations on voting rights. The capital market line graphs the relationship between return and risk (beta). All of these choices are correct.
Particulars 1. Discount rate АВС XYZ 18.5% 14.25% Not 2. Historical growth rate 2.2218% available 3. Sustainable growth 4.5% 20% rate 4. Fundamental value of stock using dividend growth model through historical growth rate 5. Fundamental value of stock using dividend growth model through sustainable growth rate 6. Fundamental value of stock using residual income growth model through historical growth rate 7. Fundamental value of stock using residual income growth model through sustainable growth rate Not Tavailable 3395 Not available 3953 Not 427.30 available 420.35 1 96.5
Suppose we observe from market data that, for a given non-dividend paying stock, F, ± Soer. What might explain the inequality in this relationship (i.e. why don't we observe Fo = Soe"T) if markets are efficient? Hint: try to identify real-world market frictions that might cause cases where Fo + Soe™" does not result in arbitrage opportunities
The dividend growth model of stock evaluation relies on several assumptions that might not be true in the real world. What are they?
“Highly variable stock prices suggest that the market does not know how to price stocks.” Comment.
Consider the following two, completely separate economies. The expected return and volatility of all stocks in both economies are the same. In the first economy, all stocks move together in good times all prices rise together and in bad times, they all fall together. In the second economy, stock returns are independent-one stock increasing in price has no effect on the prices of other stocks. Which economy would you choose to invest in? Explain your rationale for your choice.
Explain whether the following statements are true or false. Justify your answer and solve both the parts of this question. a) The income from bond is more uncertain compared to the income from shares b) Managers want to maximize the intrisic value of the stock not the market price of the stock.
II. Determine what form of the theory of efficient market is being described in each item. Write W for weak form, SE for semi-strong form, ST_ for strong form. _7. The fundamental analysis will not give new information in this form. 8. Both the fundamental and technical analysis will not give new information. 9. The stock pricess show historical information which may or may not include inside information. _10. The stodk prices already reflect all publicly available date such as any product, financial statement, etc.
If the intrinsic value of a stock is below the current market price, over time we can expect buy orders to exceed sell orders, causing the price to rise buy and sell orders to be evenly matched, keeping the price at its current level sell orders to exceed buy orders, causing the price to rise sell orders to exceed buy orders, causing the price to fall buy orders to exceed sell orders, causing the price to fall

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