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StudyQsSiegel&Malkiel - You should be prepared to...

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You should be prepared to answer the following questions on Exam 2 in Fin 331. Study Questions for Stocks for the Long Run, 3d ed. by Jeremy Siegel, chapter 8. 1. As noted in Chapter 5 of your text, small cap stocks have outperformed large cap stocks for the period 1926-2003. (a) Some have suggested that higher returns on small cap stocks are return for lower liquidity, due to the higher transaction costs of trading them. Why is Prof. Siegel not convinced by that argument? (b) According to Prof. Siegel, the higher returns on small cap stocks are entirely due to the 1975-83 period. What reasons does he give for the high returns on small cap stocks during 1975-83? What is the relationship between returns on large cap and small cap stocks if 1975-83 is removed? 2. Prof. Siegel states that stocks can be classified as either value or growth on the basis of P-E ratios. (a) Are high P-E ratios associated with value stocks, or with growth stocks? Why? Prof. Siegel also discusses classifying stocks on the basis of the “price-to-book”
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