Assignment2 Solution

Assignment2 Solution - Assignment 2 Solutions Corporate...

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Assignment 2 Solutions Corporate Finance II (ACTSC372) Problem 1: Systematic profit from historical price patterns is not consistent with the efficient markets hypothesis. The weak form of market efficiency is violated if investors can systematically profit from trading rules based on patterns in historical stock prices. Problem 2: The statement is false because every investor has a different risk preference. Although the expected return from every well-diversified portfolio is the same after adjusting for risk, investors still need to choose funds that are consistent with their particular risk level.
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Problem 3: The cumulative returns are shown below for the Royal Bank and CIBC. TSX daily Royal Bank Royal Bank BMO Daily Cumulative Daily Cumulative 2-Jan-98 5-Jan-98 0.46% 4.82% 4.36% 2.60% 2.14% 6-Jan-98 -1.27% -0.95% 0.32% -1.18% 0.09% 7-Jan-98 -0.99% -1.52% -0.53% -2.64% -1.65% 8-Jan-98 -1.52% -1.16% 0.36% -0.31% 1.21% 9-Jan-98 -3.36% -2.08% 1.28% -3.14% 0.22% 12-Jan-98 -0.52% -0.28% 0.24% -1.74% -1.22% 13-Jan-98 1.44% 2.27% 0.83% 1.69% 0.25% 14-Jan-98 0.34% -0.52% -0.86% -0.99% -1.33% 15-Jan-98 -0.38% -1.77% -1.39% -2.44% -2.06% 16-Jan-98 1.45% -0.67% -2.12% 1.02% -0.43% 19-Jan-98 0.89% 1.02% 0.13% 0.69% -0.20% 20-Jan-98 0.52% -0.14% -0.66% 1.17% 0.65% 21-Jan-98 -0.23% -0.08% 0.15% 0.00% 0.23% 22-Jan-98 -1.65% -3.98% -2.33% -4.42% -2.77% 23-Jan-98 1.63% 5.40% 3.77% 18.25% 16.62% 26-Jan-98 1.42% 2.99% 1.57% 3.70% 2.28% 27-Jan-98 2.11% 0.38% -1.73% -0.34% -2.45% 28-Jan-98 0.14% -0.64% -0.78% -1.30% -1.44% 29-Jan-98 -0.18% -1.03% -0.85% -1.45% -1.27% 30-Jan-98 -0.28% -0.84% -0.56% -1.40% -1.12% 1.20% 7.75% On the announcement date of Jan 23, the Bank of Montreal share price had an abnormal return of 16.62% indicating a positive signal for the investors for this bank. After this date, there was little movement and before this date there was little movement. Indicating that within one day the full impact of this announcement was included in the price. For the Royal Bank, there was little overall movement throughout the month.
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The cumulative return calculation is shown below for CIBC and TD: April CIBC daily CIBC TD TD TSX daily
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Assignment2 Solution - Assignment 2 Solutions Corporate...

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