Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 13, Problem 1P

Assume that all investors have the same information and care only about expected return and volatility. If new information arrives about one stock, can this information affect the price and return of other stocks? If so, explain why?

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Summary Introduction

To determine: To respond to the given statement.

Statement: Can the stock prices and stock returns affect if any new information arrives regarding the stock?

Introduction: Expected return is the method of finding the average anticipated probability of several diverse interest rates that are probable on a particular asset. The issues in such persistence comprise of dissimilar market environments that includes the beta of an asset.

Answer to Problem 1P

Answer: Yes, the stock prices and stock returns affect if any new information arrives regarding the stock.

Explanation of Solution

Yes, the stock prices and stock returns affect if any new information arrives regarding the stock.

Following are the reasons that suggest that the stock prices and stock returns affect if any new information arrives regarding the stock:

  • If the other stock prices remain constant, the shareholders will prefer to raise the weight of the stock by indicating not to hold the market portfolio.
  • As a result of the arrival of new information, it modifies the stock’s appearance.

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Students have asked these similar questions
When all investors have the same information and care only about expected return and volatility; if new information arrives about one stock, can this information affect the price and return of other stocks?
1. What effect does increasing inflation expectations have on the required returns of investors in common stock? 2. Explain the specific relationship between risk and reward and why this relationship must be true.
Which of the following statements concerning the Efficient Market Hypothesis is correct? Select one: a. Stock market prices are based on speculation not on underlying information   b. New information that confirms investor expectations should change stock prices c. Stock prices should slowly respond when unexpected information becomes available d. Careful research can help investors earn abnormal profits e. Your return on investment should reflect the riskiness of your portfolio

Chapter 13 Solutions

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book

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