Assume that you recently graduated with a degree in finance and have just reported to work as an investment adviser at the brokerage firm of Smyth Barry and Co. Your first assignment is to explain the nature of the U.S financial markets to Michelle Varga, a professional tennis player who recently came to the United States from Mexico. Varga is a highly ranked tennis player who expects to invest substantial amounts of money through Smyth Barry. She is very bright; therefore, she would like to understand in general terms what will happen to her money. Your boss has developed the following questions that you must use to explain the U.S financial system to Varga.

g. If Apple Computer decided to issue additional common stock, and Varga purchased 100 shares of this stock from Smyth Barry, the underwriter, would this transaction be a primary or a secondary market transactions? Would it make a difference if Varga purchased previously outstanding Apple stock in the dealer market? Explain. h. What is an initial public offering (IPO)? i. What does it mean for a market to be efficient? Explain why some stock prices may be more efficient than others. j. After your consultation with Michelle, she wants to discuss these two possible stock purchases: 1. While in the waiting room of your office, she overheard an analyst on a financial TV network say that a particular medical research company just received FDA approval for one of its products. On the basis of this hot information, Michelle wants to buy many shares of that companys stock. Assuming the stock market is highly efficient, what advice would you give her?

2. She has read a number of newspaper articles about huge IPO being carried out by a leading technology company. She wants to purchase as may shares in the IPO as possible and would even be willing to buy the shares in the open market immediately after the issue. What advice do you have for her?

k. How does behavioral finance explain the real world inconsistencies of the efficient markets hypothesis (EMH)?