The purpose of this assignment is to allow the student an opportunity to explain what it means to have an efficient capital market. Students will gain an understanding of the different levels of market efficiency and how behavioral finance can inhibit reaching market transparency.

Explain in 525 words what it means to have efficient capital market, including:

• Describe the behavioral challenges in achieving efficiency.
• Discuss the three forms of market efficiency.
• What are the implications to corporate finance?
• Would you consider the real estate market an efficient capital market? Please explain why or why not.

If investing in calls or puts is higher risk than investing in the actual stocks, why would anyone ever want to buy those things?

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ 9.6 million. Investment A will generate $ 2.06 million per year​ (starting at the end of the first​ year) in perpetuity. Investment B will generate $ 1.48 million at the end of the first​ year, and its revenues will grow at 2.2 % per year for every year after that. a. Which investment has the higher IRR​? b. Which investment has the higher NPV when the cost of capital is 5.8 %​? c. In this​ case, when does picking the higher IRR give the correct answer as to which investment is the best​ opportunity?

Suppose that the price of the same basket of goods at time 0 is PC0= 100 in country C and PD0= 90 in country D, so that the exchange rate is SCD0=10090. Inflation rates are expected to be 10% in country C and 21% in country D, over the foreseeable future.  

a) Does PP approximately predict an appreciation or depreciation of currency C?

b) What are the expected price levels in the two countries (i.e., PC1 and PD1 ) and the expected no-arbitrage exchange rate in one period (i.e., SC1 )? (Use the exact
form).

d) What is the expected no-arbitrage exchange rate two-years into the future?

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 5%. The probability distribution of the risky funds is as follows:

The correlation between the fund returns is 0.09.

What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)

Margaret is engaged in a research project which involves 1,000 listed companies. Her research is based on a hypothesis that there is no significant difference between the discretionary accruals of large and small companies. Margaret hopes her research will provide insight to the practices of all companies around the world

a. State whether Margaret is using a naturalistic or scientific approach

b. Using the information provided, briefly outline at least 3 reasons to support your answer

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The trustees of a pension fund would like to examine the issue of protecting the bonds

in the fund’s portfolio against an increase in interest rates using options and futures.

Before discussing this with their external bond fund manager, they decide to ask four

consultants about their recommendations as to what should be done at this time. It turns

out that each of them has a different recommendation. Consultant A suggests selling

covered calls, Consultant B suggests doing nothing at all, Consultant C suggests selling

interest rate futures, and Consultant D suggests buying puts. The reason for their different

recommendations is that although all consultants understand the pension fund’s objective

of minimizing risk, they differ with one another in regards to their outlook on future

interest rates. One of the consultants believes interest rates are headed downward, one has

no opinion, one believes that the interest rates would not change much in either direction,

and one believes that the interest rates are headed upward. Based on the consultants’

recommendations, could you identify the outlook of each consultant?

Assume that the average variance of return for an individual security is 50 and that the average covariance is 10. What is the expected variance of an equally weighted port- folio of 5, 10, 20, 50, and 100 securities?

Your brother has offered to give you $ 160​, starting next​ year, and after that growing at 2.5 % per year for the next 20 years. You would like to calculate the value of this offer by calculating how much money you would need to deposit in a local bank so that the amount will generate the same cash flows as he is offering you. Your local bank will guarantee a 5.5 % annual interest rate so long as you have money in the account.

a. How much money will you need to deposit into the account​ today?

b. Assuming you deposited the amount of money in part ​(a​), and then withdrew the required payments each​ year, calculate the remaining balance at the end of years​ 1, 2, 10 and 19.​ (Hint: To solve this problem it is best to use an excel​ spreadsheet.)  

List some stakeholders for Siemens (company in the same industry as General Electric) and how they benefit.

Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $3,130,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 5.0 times during the year, and its DSO was 39 days. Its annual cost of goods sold was $1,750,000. The firm had fixed assets totaling $505,000. Strickler's payables deferral period is 41 days. Assume a 365-day year. Do not round intermediate calculations.

1. Calculate Strickler's cash conversion cycle. Do not round intermediate calculations. Round your answer to two decimal places.

     days

2. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Do not round intermediate calculations. Round your answers to two decimal places.

   Total assets turnover:  ×

   ROA:   %

3. Suppose Strickler's managers believe the annual inventory turnover can be raised to 8 times without affecting sale or profit margins. What would Strickler's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 8 for the year? Do not round intermediate calculations. Round your answers to two decimal places.

   Cash conversion cycle:   days

   Total assets turnover:    ×

   ROA:    %

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