Edward O. Thorp is an American mathematics professor, hedge fund manager, and blackjack player. To beat roulette, he and the father of information theory, Claude Shannon, invented the first wearable computer. Along with innovative applications of probability theory, Thorp is also the New York Times bestselling author of Beat the Dealer, the first book to mathematically prove that the house advantage in blackjack could be overcome by card-counting. He would take his knowledge of gambling to the biggest casino in the world: Wall Street, revolutionize investing, and make millions. In this book he tells the history of his life, you will have to read about what he wrote about the Efficient Market Hypothesis (EMH). I highly encourage that you read this book during the rest of the summer, you will find it, highly enjoyable. Instructions: Read the chapter and answer the questions a) Is Edward Thorp a believer in the EMH? Justify your answer. b) According to Thorp, which are the ways in how an individual investor can beat the market? c) What happened with the SPACs (Special Purpose Acquisition Corporations) during the crisis of 2008? d) What does the concept Circle of Competence mean?

Part B

1. You are planning to create a portfolio of two stocks: Amazon and Tesla. The Amazon beta is 1.16 and Tesla is 1.89.

Using the US 10 yr. treasury bond rate as a proxy of the risk free rate of return, we know that it is 1.70%. As a proxy for market average rate of return we use S&P 500 etf which is 15.40%. a) calculate the mean return of the portfolios consisting of: 50% of Amazon and 50% of Tesla. b) Calculate also the beta of the portfolio.