midterm 2 - Economics 136. Financial Economics Midterm 2,...

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Economics 136. Financial Economics Midterm 2, Fall 2009 use a calculator and two double sided sheets of handwritten notes. 1. True or false. (25 points, 5 each) Are the following statements true or false? Explain your answer in no more than two sentences. You will be graded on your explanation. (i) Historically, low dividend-price ratios of the S±P 500 have predicted high (positive) subsequent price growth and essentially no subsequent change in dividends. (ii) The following fact violates the semi-strong form of the e¢ cient markets hypothesis: prices of companies tend to increase a few days before public announcement of good news. (iii) Historically, stocks with high price-earnings ratios have outperformed stocks with low price-earnings ratios. (iv) The e¢ cient market hypothesis implies that the expected return of a call option must be the same as the expected return of the underlying stock. (v) Evans Hall is more beautiful than the Golden Gate bridge. [Only if you have time; all answers, including leaving it blank, are accepted!] 2. CAL and portfolio choice (25 points, 5 each) [Note: use natural units in your solution: e.g., a standard deviation of 20% means = 0 : 2 and 2 = 0 : 2 2 = 0 : 04 .] You are a ²nancial advisor who works with two assets: a stock index and a riskfree asset.
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This note was uploaded on 09/02/2010 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.

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midterm 2 - Economics 136. Financial Economics Midterm 2,...

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