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chap10_quest - CHAPTER 10 RISK AND RETURN: LESSONS FROM...

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CHAPTER 10 RISK AND RETURN: LESSONS FROM MARKET HISTORY Answers to Concepts Review and Critical Thinking Questions 1. They all wish they had! Since they didn’t, it must have been the case that the stellar performance was not foreseeable, at least not by most. 2. As in the previous question, it’s easy to see after the fact that the investment was terrible, but it probably wasn’t so easy ahead of time. 3. No, stocks are riskier. Some investors are highly risk averse, and the extra possible return doesn’t attract them relative to the extra risk. 5. T-bill rates were highest in the early eighties. This was during a period of high inflation and is consistent with the Fisher effect. 7. Yes, the stock prices are currently the same. Below is a diagram that depicts the stocks’ price movements. Two years ago, each stock had the same price, P 0 . Over the first year, General Materials’ stock price increased by 10 percent, or (1.1) × P 0 . Standard Fixtures’ stock price declined by 10 percent, or (0.9)
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This note was uploaded on 02/14/2011 for the course FINANCE 620 taught by Professor Halstead during the Spring '09 term at UMBC.

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chap10_quest - CHAPTER 10 RISK AND RETURN: LESSONS FROM...

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