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10. Based on the empirical evidence pertaining to efficient markets, which of the following is most likely to earn abnormal returns? A technical analyst. A

10. Based on the empirical evidence pertaining to efficient markets, which of the following is most likely to earn abnormal returns?

A technical analyst.

A securities analyst.

A company insider.

A passive investor using index funds.

Closed End investment companies.

Open End investment companies or mutual funds.

11. Recall the Value of the Firm0 = FCFt / [1 + WACC]t with t from 1 to . The owners of Martial Arts Inc. [the owner/operator of a chain of karate dojos] are considering selling their business to a private equity firm. Next years end-of-year free cash flow (FCF1) is expected to be $1.45 million, lower than recent years due to a major expansion. Free Cash Flow is expected to grow at the rates shown in the table below thereafter. Beginning in year 7 a constant growth rate of 4% is forecast. The company's WACC is 6.50%. What is the estimated intrinsic value of the firm in millions of dollars? [Round to 2 decimals, for example $23.35]

Year

1

2

3

4

5

6

7

Growth Rates

30.00%

24.00%

18.00%

15.00%

10.00%

4.00%

a. $59.37

b. $69.35

c. $71.28

d. $111.28

e. $104.85

12. Momentum has been reported in stock returns of many world stock markets. Existence of momentum:

leads to abnormal return if weak form efficient market is accurate.

contradicts weak form of EMH.

contradicts semi-strong form of EMH.

leads to normal return if weak form efficient market is not accurate.

All of the above answers are correct.

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