Question
Are the following statements true or false? Briefly explain your answers. [Hint: State your conclusion and then briefly explain (preferably in no more than a
Are the following statements true or false? Briefly explain your answers. [Hint: State your conclusion and then briefly explain (preferably in no more than a few lines).]
(a) If a firm announces an unexpectedly large cash dividend, the EMH would predict a gradual price change to occur for several weeks after the announcement. (4 marks)
(b) If the ROE of a company is higher than its discount rate r, it would be in shareholders interest to retain earnings in the company. (5 marks)
(c) Duration is a good measure of interest rate risk if change in yield is small and rates change in a parallel fashion. Satisfying these two assumptions imply that two portfolios with the same duration will react in exactly the same way to a given change in yield. True or false? Briefly explain your answer. (6 marks)
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