Finance 320 Homework

1. Suppose investors believe that the standard deviation of the market-index portfolio has increased by 50%. Speculate on two potential implications of CAPM regarding the effect of this change on the required rate of return for a company’s investment projects.

2. From the e-Activity, compare the returns of the two selected funds for the past 10 years. Determine whether you believe that the single-index CAPM should or should not be rejected. Explain why or why not.

eActivity

  • Go to Morningstar’s Website, located at http://www.morningstar.com/Cover/Funds.aspx, and select any mutual fund that follows the S&P 500 Index. Next, select any actively managed fund of your choice that beats the S&P 500 Index portfolio. Be prepared to discuss.

3. Create an argument for the version of the efficient market hypothesis (i.e., weak, semi-strong, and strong) that you most strongly agree with. Provide support for your position.

4. Take a position on the following statement: Highly variable stock prices suggest that the market does not know how to price stocks. Support your answer with examples.

 
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