Use the information below for Parts A-C. Today, (T=0) Stock D closed at $15.00, Stock E closed at $25.00, and Stock F closed at $20.00. Stocks D-F pay no dividends and the expected total return of each stock (using the CAPM) can be thought of as the fair rate of return an investor would require to invest in each stock. Different market participants also have different expectations about the price of each stock will close at one year from today (T=1) summarized in the table below.

Expected Share Price 1 Year from Today (T=1)
	Stock D	Stock E	Stock F
CAPM/SML Method	$ 18.00	$ 28.00	$ 23.00
Company's Management	$ 13.50	$ 28.00	$ 25.00
Fundamental Analysts	$ 18.75	$ 28.00	$ 24.00
Technical Analsyts	$ 19.50	$ 27.00	$ 23.00

A. Assume you are on the Board of Directors (i.e. an insider) for each company. If the market is semi strong efficient, which of the following statements is (are) TRUE:

I. By comparing the price predicted by companys management to the price predicted by the CAPM/SML method, you believe that only one of the three companies is fairly valued

II. It would be a good idea for you to buy Company Ds stock because fundamental analysts predict the stock to increase by 25.0%, or 5% more than required

III. It would be a good idea for you to sell Company Ds stock because you have non-public information that predicts the stock will decrease by 10.0%

1. I

2. II

3. III

4. All of the statements

5. None of the statements

A. Assume the market is weak form efficient. Compare the price predicted by Fundamental Analysts to the price predicted by the SML/CAPM. How many of the stocks would you choose to sell (or how many stocks are undervalued)?

A. 0

B. 1

C. 2

D. 3

E. Impossible to determine because all public information is already reflected in each stocks current price

B. Assume the market is weak form efficient. Compare the Target Price predicted by Technical Analysts to the price predicted by the SML/CAPM. How many of the stocks would you choose to buy (or how many stocks are overvalued)?

1. 0

2. 1

3. 2

4. 3

5. Impossible to determine because historical price trends are useless in identifying mispriced stocks