EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 11, Problem 10CP
Summary Introduction
(A)
To explain reasons for growth stock investment outperforming value stock investment over a period of time.
Introduction:
Growth and value stock are two approaches in investing funds.
Summary Introduction
(B)
To explain: The reason for value stock not outperforming growth stock in efficient
Introduction:
Value stock has outperformed growth stock over extended period of time.
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Growth and value can be defined in several ways. “Growth” usually conveys the idea of a portfolio emphasizing or including only issues believed to possess above-average future rates of per-share earnings growth. Low current yield, high price-to-book ratios, and high price-to-earnings ratios are typical characteristics of such portfolios. “Value” usually conveys the idea of portfolios emphasizing or including only issues currently showing low price-to-book ratios, low price-to-earnings ratios, above-average levels of dividend yield, and market prices believed to be below the issues’ intrinsic values.a. Identify and provide reasons why, over an extended period of time, value-stock investing might outperform growth-stock investing.b. Explain why the outcome suggested in (a) should not be possible in a market widely regarded as being highly efficient.
Capital asset pricing theory asserts that portfolio returns are best explained by:a. Economic factors.b. Specific risk.c. Systematic risk.d. Diversification.
The capital asset pricing model expresses the cost of equity as a function of a return on riskless assets, a market premium, and: Select one:a. Unsystematic risk.b. None of these.c. The cost of debt.d. Systematic risk.
Chapter 11 Solutions
EBK INVESTMENTS
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- The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the risk-free rate plus a risk premium for: a. Volatility b. Systematic risk c. Non-systematic risk d. Diversification e. Marginal utility of consumptionarrow_forwardIn contrast to the capital asset pricing model, arbitrage pricing theory:a. Requires that markets be in equilibrium.b. Uses risk premiums based on micro variables.c. Specifies the number and identifies specific factors that determine expected returns.d. Does not require the restrictive assumptions concerning the market portfolio.arrow_forwardWhat does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choicearrow_forward
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