(i) Assume that all investors

(i) 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

(ii) Assume that the CAPM is a good description of stock price returns. The market expected return is 8% with 8% volatility and the risk-free rate is 4%. New news arrives that does not change any of these numbers but it does change the expected return of the following stocks:

a. At current market prices, which stocks represent buying opportunities?

b. On which stocks should you put a sell order in?

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