The value of alpha in the efficient market. Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

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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.

Chapter 12, Problem 4MC

Summary Introduction

To determine: The value of alpha in the efficient market.

Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

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(d) Estimate the value of a share of Cisco common stock using the discounted cash flow (DCF) model as of July 27, 2019 using the following assumptions Assumptions Discount rate (WACC) Common shares outstanding 7.60% 5,029.00 million Net nonoperating obligations (NNO) $(8,747) million NNO is negative, which means that Cisco has net nonoperating investments CSCO ($ millions) DCF Model Reported 2019 Forecast Horizon 2020 Est. 2021 Est. 2022 Est. 2023 Est. Terminal Period Increase in NOA FCFF (NOPAT - Increase in NOA) $ 1241 1303 1368 10673 11207 11767 1437 $ 12354 302 ✓ Present value of horizon FCFF 9918 9679 9445 ✔ 0 × Cum. present value of horizon FCFF $ 0 × Present value of terminal FCFF 0 ☑ Total firm value 0 ☑ NNO -8747 ✓ Firm equity value $ 0 ☑ Shares outstanding (millions) 5029 Stock price per share $ 40.05

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Answer 2

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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.

Chapter 12, Problem 4MC

Summary Introduction

To determine: The value of alpha in the efficient market.

Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

Expert Solution & Answer

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Answer 3

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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.

Chapter 12, Problem 4MC

Summary Introduction

To determine: The value of alpha in the efficient market.

Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

Expert Solution & Answer

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Answer 4

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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.

Chapter 12, Problem 4MC

Summary Introduction

To determine: The value of alpha in the efficient market.

Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

Expert Solution & Answer

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Answer 5

Chapter 12, Problem 4MC

Summary Introduction

To determine: The value of alpha in the efficient market.

Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

Answer 6

Chapter 12, Problem 4MC

Summary Introduction

To determine: The value of alpha in the efficient market.

Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

Answer 7

Chapter 12, Problem 4MC

Summary Introduction

To determine: The value of alpha in the efficient market.

Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

Answer 8

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Ch. 12 - Prob. 1CQ Ch. 12 - Prob. 2CQ Ch. 12 - Prob. 3CQ Ch. 12 - Prob. 4CQ Ch. 12 - Market Model versus APT What are the differences...Ch. 12 - APT In contrast to the CAPM, the APT does not...Ch. 12 - CAPM versus APT What is the relationship between...Ch. 12 - Prob. 8CQ Ch. 12 - Data Mining What is data mining? Why might it...Ch. 12 - Prob. 10CQ

The value of alpha in the efficient market. Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

Solution Summary: The author explains the value of alpha in the efficient market. Market efficiency is characterized as a condition in which the market has access to all information that could influence the stock's price.

To determine: The value of alpha in the efficient market.

Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

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Chapter 12 Solutions

The value of alpha in the efficient market. Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

Solution Summary: The author explains the value of alpha in the efficient market. Market efficiency is characterized as a condition in which the market has access to all information that could influence the stock's price.

To determine: The value of alpha in the efficient market. Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.

Want to see the full answer?

Chapter 12 Solutions

To determine: The value of alpha in the efficient market.

Introduction: When compared to a market index or other wide benchmark, an investment's performance is measured by its alpha or relative return.