Chapter 008_Problem Solutions 1

Chapter 008_Problem Solutions 1 - BUS 415 Investment and...

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BUS 415: Investment and Portfolio Management Solutions for Additional Problems Chapter 8 13. d. 14. c.The P/E ratio is public information so this observation would provide evidence against the semistrong form of the efficient market theory. 15. Assumptions supporting passive management are: a. informational efficiency b. primacy of diversification motives Active management is supported by the opposite assumptions, in particular, that pockets of market inefficiency exist. 16. a.The grandson is recommending taking advantage of (i) the small firm anomaly and (ii) the January anomaly. In fact, this seems to be one anomaly: the small- firm-in-January anomaly. b. (i) Concentration of one’s portfolio in stocks having very similar attributes may expose the portfolio to more risk than is desirable. The strategy limits the potential for diversification. (ii) Even if the study results are correct as described, each such study covers a specific time period. There is no assurance that future time periods would
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Chapter 008_Problem Solutions 1 - BUS 415 Investment and...

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