2. A stock sells for $40. The next dividend will be $4 per share. If the rate of return earned on reinvested funds is 15 percent and the company reinvests 40 percent of earnings in the firm, what must be the discount rate?
3. Supply the missing words from the following list: fundamental, semistrong, strong, technical, weak.
There are three forms of the efficient market theory. Tests that have found there are no patterns in share price changes provide evidence for the __________ form of the theory. Evidence for the __________ form of the theory is provided by tests that look at how rapidly markets respond to new public information, and evidence for the __________ form of the theory is provided by tests that look at the performance of professionally managed portfolios. Market efficiency results from competition between investors. Many investors search for information about the company's business that would help them to value the stock more accurately. This is known as __________ analysis. Such research helps to ensure that prices reflect all available information. Other investors study past stock prices for recurrent patterns that would allow them to make superior profits. This is known as __________ analysis. Such research helps to eliminate any patterns.