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Explain why each of the following statements is either True or False. A. If every investor...

Explain why each of the following statements is either True or False. A. If every investor followed a long-term “buy and hold” strategy, the stock market would not be efficient. B. Stock A is trading at the top of its 52-week range, Stock B is trading at the bottom if its 52 week range. If the market is efficient, most rational investors would prefer Stock A to Stock B at their current prices. C. Stock A is trading at the top of its 52-week range, Stock B is trading at the bottom of its 52 week range. If the market is efficient, one possible explanation for this information is that the operating performance of Company A during the past year exceeded investor expectations, while the operating performance of Company B disappointed investors.

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Expert Solution

A. If every investor followed a long-term “buy and hold” strategy, the stock market would not be efficient.- False. A long term buy & hold startergy will make market efficient

B. Stock A is trading at the top of its 52-week range, Stock B is trading at the bottom if its 52 week range. If the market is efficient, most rational investors would prefer Stock A to Stock B at their current prices. False. Rationale investor would prefer B instead of A as stock B is trading at lower end and is considered to be undervalued.

C. Stock A is trading at the top of its 52-week range, Stock B is trading at the bottom of its 52 week range. If the market is efficient, one possible explanation for this information is that the operating performance of Company A during the past year exceeded investor expectations, while the operating performance of Company B disappointed investors. True. Market is based on expectations. In this case Stock A has exceeded investor expectations and hence trading at higher range & vice versa for Stock B


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