Assume that you recently graduated with a degree in finance and have just reported working as an investment adviser at the brokerage firm of Mac Lyn Don & Co. Your first assignment is to explain the nature of the Philippine financial markets to Pedro Juan, a professional basketball player who recently came to the Philippines from the United States. Juan is a highly ranked basketball player who expects to invest substantial amounts of money through Mac Lyn Don & Co. He would like to understand in general terms what will happen to his money. Your boss has developed the following questions that you must use to explain the Philippine financial system to Juan.

Questions:

1. If Apple decided to issue additional common stock, and Juan purchased 100 shares of this stock from Mac Lyn Don & Co., the underwriter, would this transaction be a primary or a secondary market transaction?
2. Would it make a difference if Juan purchased previously outstanding Apple stock in the dealer market? Explain.
3. What does it mean for a market to be efficient? Explain why some stock prices may be more efficient than others.
4. After your consultation with Pedro Juan, he wants to discuss these two (2) possible stock purchases:

a. While in the waiting room of your office, he overheard an analyst on a financial TV network say that a particular medical research company just received Food and Drug Administration (FDA) approval for one of its products. Based on this hot information, Pedro Juan wants to buy many shares of that companys stock. Assuming the stock market is highly efficient, what advice would you give him?

b. He has read several newspaper articles about a huge initial public offering (IPO) being carried out by a leading technology company. He wants to purchase as many 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 him?

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

Please answer the questions of 1, 2, 3, 4, and 5. Thanks