Copy of MGF301 Assignment 3 - answers-2

Copy of MGF301 Assignment 3 - answers-2 - Question 1 A 1 2...

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Question 1 Page 1 (a) Beta Rf E(Rm) E(r)=Rf - Beta(E(Rm)-Rf) Ford 2.67 0.01 0.10 0.25 Walmart 0.20 0.01 0.10 0.03 (b) Walmart has a lower expected return because Walmart has a low level of market risk. In other words, when the economy goes into a recession, Walmart does not fall as much as the market because Walmart gains customers in a recession. In contrast, Ford has a high level of market risk because sales of new cars are heavily dependent on the state of the economy. So Ford has a higher expected return to compensate for the extra market risk. A B C D E F G 1 2 3 4 5 6 7 8 9 10 11 12
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Question 2(a) #4 An example of a company with an announcement that caused the stock price to increase by more than 1% is FMT shown below. The news was that the company had successfully arranged for an increased line of credit. This news was available before the market opened for trading on Friday. So Wed, Thur were the two days before the announcement and Friday was the day the announcment was first reflected in the price. In terms of market efficiency, there was a quick
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Copy of MGF301 Assignment 3 - answers-2 - Question 1 A 1 2...

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