1.Two securities have the same expected return. a) According to the CAPM, what can you say about their market risk? b) Their total risk?

2. What happens to the slope of the CML efficient frontier if the risk-free rate increases and other expected returns and standard deviations do not change?

3. The Capital Market Line indicates that there is additional expected return for taking on which type of risk when investing in individual stocks?

4. (Fill in the blank)

a. In differentiating between weak, semi-strong, and strong forms of the Efficient Markets Hypothesis, the focus is on how ________ information is embedded in the stock price.

b. In terms of operational efficiency in the financial markets, the focus is on how ________ information is embedded in the stock price.

5. What are some of the important sources of public information that are reflected in stock prices according to the Semi-Strong form of the Efficient Markets hypothesis, but NOT reflected in stock prices according to the Weak form of the Efficient Markets bypothesis?

6. Apply the Capital Market Line. The risk-free rate is 3%, the Expected return on the market is 12%, and the market standard deviation is 4% (.04).

a. What is the expected return for an efficient portfolio with a standard deviation of 3.5% (.035)?

b. What is the expected return for an efficient portfolio with a standard deviation of 5% (.05)?

7. The concept of semi-efficient markets indicates there is an opportunity for additional returns from what type of securities? Discuss how an investor obtains this additional return in terms of supply and demand and stock pricing.

8. The ability of what class of investors to generate abnormal returns causes the Strong Form of the Efficient Markets Hypothesis to fail to hold?

9. See the chart showing the Stock Price Reaction to CNBC Reports.

a. Immediately following the earnings report, what happens to the cumulative return? Does this result indicate an efficient market?

b. For positive announcements, describe the subsequent price movement. Does this result indicate an efficient market?

c. For negative announcements, describe the subsequent price movement. Does this result indicate an efficient market?

AutoSave C Hw6 2018 (1) - Saved to this PO Sign in -X File Home Insert Design ayout References Mailings Review View Help Tell me what you want to do Share- 1. Two securities have the same expected return. a) According to the CAPM, what can you say about their market risk? b Their total risk? 2. What happens to the slope of the CML efficient frontier if the risk-free rate increases and other expected returns and standard deviations do not change? The Capital Market Line indicates that there is additional expected return for taking on which type of risk when investing in individual stocks? 3. 4. Fill in the blank) a. In differentiating between weak, seml-strong, and strong forms of the Efficient Markets Hypothesis, the focus is on how information is embedded in the stock price. b. In terms of operational efficiency in the financial markets, the focus is on howin is embedded in the stock price. 5. What are some of the important sources of public information that are reflected in stock prices according to the Seml-Strong form of the Efficient Markets hypothesis, but NOT reflected in stock prices according to the Weak form of the Efficient Markets bypothesis? 6. Apply the Capital Market Line. The risk-free rate is 3%, the Expected return on the market is 12%, and the market standard deviation is 4% (.04). a. what is the expected return for an efficient portfolio with a standard deviation of 3.5% (.035)? b, what is the expected return for an efficient portfolio with a standard deviation of 5% (.05)? 7. The concept of semi-effcent markets indicates there is an opportunity for additional returns from what type of securities? Discuss how an investor obtains this additional return in terms of supply and demand and stock pricing. The ability of what class of investors to generate abnormal returns causes the Strong Form of the Efficient Markets Hypothesis to fail to hold? 8. 9. See the chart showing the Stock Price Reaction to CNBC Reports. Page 1 ot3 663 words + 100% 4-34 PM O Type here to search 3/25/2018 2