Difficulty moderate 42 matthews corporation has a

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Difficulty: Moderate 42. Matthews Corporation has a beta of 1.2. The annualized market return yesterday was 13%, and the risk-free rate is currently 5%. You observe that Matthews had an annualized return yesterday of 17%. Assuming that markets are efficient, this suggests that A. bad news about Matthews was announced yesterday. B. good news about Matthews was announced yesterday. C. no news about Matthews was announced yesterday. D. interest rates rose yesterday. E. interest rates fell yesterday. AR = 17% - (5% + 1.2 (8%)) = +2.4%. A positive abnormal return suggests that there was firm-specific good news. Difficulty: Moderate 43. Nicholas Manufacturing just announced yesterday that its 4 th quarter earnings will be 10% higher than last year's 4 th quarter. You observe that Nicholas had an abnormal return of -1.2% yesterday. This suggests that Anticipated earnings changes are impounded into a security's price as soon as expectations are formed. Therefore a negative market response indicates that the earnings surprise was negative, that is, the increase was less than anticipated. Difficulty: Moderate 11-14
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Chapter 11 - The Efficient Market Hypothesis 45. If stock prices follow a random walk A random walk means that the changes in prices are random and independent. Difficulty: Easy 48. Which of the following are used by fundamental analysts to determine proper stock prices? I) trendlines II) earnings III) dividend prospects IV) expectations of future interest rates V) resistance levels Analysts look at fundamental factors such as earnings, dividend prospects, expectation of future interest rates, and risk of the firm. The information is used to determine the present value of future cash flows to stockholders. Technical analysts use trendlines and resistance levels. Difficulty: Moderate
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