Answered: XYZ has a beta of 1.5. The annualized…

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter2: Ethics & Governance Scandals

Section: Chapter Questions

Problem 4.12EC

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4) XYZ has a beta of 1.5. The annualized market return yesterday was 14%, and the risk-free rate is currently 1%. You observe that XYZ had an annualized return yesterday of 20%. Assuming that markets are efficient, this suggests that

         A)   bad news about Matthews was announced yesterday.
         B)   good news about Matthews was announced yesterday.
         C)   no news about Matthews was announced yesterday.
         D)   interest rates rose yesterday.
         E)   interest rates fell yesterday.

Please justify your answer.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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