Concept Questions (32 points, 8 points each) Is it possible for the risk premium to be negative before an investment is undertaken Can the risk premium be negative after the fact Explain Consider the following quotation from a leading investment manager The shares of Southern Co have traded close to $12 for most of the past three years Since Southerns stock has demonstrated very little price movement, the stock has a low beta Texas Instruments, on the other hand, has traded as high as $150 and as low as its current $75 Since TIs stock has demonstrated a large amount of price movement, the stock has a very high beta Do you agree with this analysis Explain We learned that the price of a stock is the present value of future dividends A substantial percentage of thecompanies listed on the NYSE and the NASDAQ dont pay dividends, but investors are nonetheless willing to buy shares in them How is this possible if all of the value of a stock is associated with dividend payments Several celebrated investors and stock pickers frequently mentioned in the financial press have recorded huge returns on their investments over the past two decades Does the success of these particular investors invalidate the EMH Explain

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Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain.

Consider the following quotation from a leading investment manager: The shares of Southern Co. have traded close to $12 for most of the past three years. Since Southerns stock has demonstrated very little price movement, the stock has a low beta. Texas Instruments, on the other hand, has traded as high as $150 and as low as its current $75. Since TIs stock has demonstrated a large amount of price movement, the stock has a very high beta. Do you agree with this analysis? Explain.

We learned that the price of a stock is the present value of future dividends. A substantial percentage of thecompanies listed on the NYSE and the NASDAQ dont pay dividends, but investors are nonetheless willing to buy shares in them. How is this possible if all of the value of a stock is associated with dividend payments?

Several celebrated investors and stock pickers frequently mentioned in the financial press have recorded huge returns on their investments over the past two decades. Does the success of these particular investors invalidate the EMH? Explain.