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4 - chosen randomly Analytical Problem 1 Your brother has a...

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Unit 4 - Stocks, Stock Markets, and Market Efficiency 4-1 Unit 4: Stocks, Stock Markets, and Market Efficiency Conceptual Problem 1 Explain why being a residual claimant makes stock ownership risky. Conceptual Problem 2 Check the business section of a recent newspaper (or a financial website) to find the current level of each of the following indices, along with its change over the last 12 months: Dow Jones Industrial Average Standard & Poor’s 500 Index Nasdaq Composite Wilshire 5000 Comment on what you have found, including the differences among the indices. . Conceptual Problem 3 Explain why an investment portfolio composed of all the stocks in the Standard and Poor’s 500 Index is less risky than an investment portfolio composed of 20 stocks
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Unformatted text preview: chosen randomly. Analytical Problem 1 Your brother has a $1000 and a one-year investment horizon and asks your advice about whether he should invest in a particular company’s stock? What information would you suggest he analyze when making his decision? Is there an alternative investment strategy to gain exposure to the stock market you might suggest he consider? Analytical Problem 2 You peruse the available records of some public figures in your area and notice that they persistently gain higher returns on their stock portfolios than the market average. As a believer in efficient markets, what explanation for these rates of returns seems most likely to you?...
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