Attached are a short list of simple multiple choice questions please choose correct one.Also there is a few short answer problems PLEASE SHOW WORKAn article in the
Wall Street Journal
makes the following observations:
The outlook for companies: robust earnings and revenue growth. Firms in the S&P 500 arc expected to report year-over-year earnings growth of about 37%, well above the 7% to 8% historical average… It should all be good news for stocks --- except the gains may be priced in. Source: Kelly Evans, “Strong Earnings Season Appears Baked In,” Wall Street Journal, March 30, 2010. 6. When the author says that "the gains may be priced in," the author is implying that all available information – including projected earnings growth – should already be incorporated into the prices of stocks. a. True b. False 7. If the gains are priced in and you bought stocks on the basis of the information contained in this article, would you be likely to earn above-average returns on your investment? a. Yes. Based on adaptive expectations you could expect to earn above-average returns on your investment. b. Yes. Based on the efficient markets hypothesis you would earn above-average returns on your investment. c. No. Based on the efficient markets hypothesis you would not earn above-average returns on your investment. d. Yes. Based on rational expectations you could expect to earn above-average returns on your investment. In 2010 Toyota recalled millions of automobiles to fix a potentially hazardous problem known as sudden acceleration. Writing in the Wall Street Journal, James Stewart gave investors the following advice: “Toyota shares were over $90 as recently as Jan. 19. They closed Tuesday at $78, 18, which strikes me as a modest decline under the circumstances. If I owned shares, I'd seize the chance to get out." Source: James Stewart, “Toyota Recall Should Warn Investors Away,” Wall Street Journal, February 3, 2010. 8. Would a believer in the efficient markets theory be likely to follow Stewart’s advice? a. Yes, because the price of the stock today reflects all relevant information. The price of Toyota stock tomorrow is likely to fall even further as even more investors become aware of Toyota's problems. b. No, because the price of the stock today reflects all relevant information the price of Toyota stock tomorrow would not fall any further because of the previously announced bad news. c. Yes, because all investors are rational they will assume that Toyota's problems will lead to other problems, which would further reduce the value of Toyota's stock. d. No. With an already low stock price it is likely that investors will seize the opportunity to capture arbitrage profits by buying Toyota's stock. The following is from a business report by the Reuters news agency: "Online retailer Overstock.com . .. posted a surprise quarterly profit and its shares jumped as much as 34 percent to their highest level in almost two years." Source: Brad Dorfman, “Overstock Posts Unexpected Profit, Shares Jump,” reuters.com, May 4, 2010. 9. What is the relationship between a company’s stock price and its profits? a. If expected future profits increase, then the firm’s stock price should also increase. b. If expected future profits decrease, then the firm’s stock price should increase. c. If expected future profits increase, then the firm’s stock price should decrease. d. Expected future profits and a firm’s stock price are not related.
This question was answered on: Sep 21, 2023
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