Question
There is always disagreement about what stocks are good purchases. The typical degree of disagreement is whether a particular stock is likely to offer, say,
There is always disagreement about what stocks are good purchases. The typical degree of disagreement is whether a particular stock is likely to offer, say, a 10% (pessimistic) or a 20% (optimistic) annualized rate of return. For a $30 stock today, what does the difference in belief between these two opinions mean for the expected stock price from today to tomorrow? (Assume that there are 365 days in the year. Reflect on your answer for a moment, and recognize that a $30 stock typically moves about $1 on a typical day. This unexplainable up-and-down volatility is often called noise.)
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