Growth and value can be defined in several ways. “Growth” usually conveys the idea of a portfolio emphasizing or including only issues believed to possess above-average future rates of per-share earnings growth. Low current yield, high price-to-book ratios, and high price-toearnings ratios are typical characteristics of such portfolios. “Value” usually conveys the idea of portfolios emphasizing or including only issues currently showing low price-to-book ratios, low price-to-earnings ratios, above-average levels of dividend yield, and market prices believed to be below the issues’ intrinsic values.

a. Identify and provide reasons why, over an extended period of time, value-stock investing might outperform growth-stock investing.

b. Explain why the outcome suggested in ( a ) should not be possible in a market widely regarded as being highly efficient.