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Unformatted text preview: ActSc 372 WINTER 2010 Assignment 5 Due Date: Monday, March 29, 2010 (Beginning of Class) 1. When the 56-year-old founder of Gulf & Western Inc. died of a heart attack, the stock price immediately jumped from $18 per share to $20.25, a 12.5 percent increase. This is evidence of market inefficiency because an efficient stock market would have anticipated his death and adjusted the price beforehand. Assume that no other information is received and the stock market as a whole does not move. Is this statement about market efficiency true or false? Explain. 2. Acetate Inc. has equity with a market value of $30 million and debt with a market value of $9 million. Treasury bills that mature in one year yield 7% per year, and the expected return on the market portfolio over the next year is 21%. The beta of Acetates equity is 0.85. Assume 14% cost of debt. The firm pays no taxes (a) What is Acetates debt-equity ratio?...
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This note was uploaded on 06/21/2010 for the course ACTSC 5255 taught by Professor Tan,kens during the Spring '10 term at Waterloo.
- Spring '10