【正文】 percentGEOMETRIC AVERAGEb 79. A stock had returns of 6 percent, 13 percent, 11 percent, and 17 percent over the past four years. What is the geometric average return for this time period? a. percent b. percent c. percent d. percent e. percentGEOMETRIC AVERAGEb 80. A stock had the following prices and dividends. What is the geometric average return on this stock? Year Price Dividend 1 $ 2 $ $.23 3 $ $.24 4 $ $.25 a. percent b. percent c. percent d. percent e. percentIV. ESSAYSEFFICIENT MARKETS81. Define the three forms of market efficiency.The student should present a straightforward discussion of weak (all past prices are in the current price), semistrong (all public information is in the current price), and strong form (all information is in the current price) market efficiency.HISTORICAL RETURNS82. What securities have offered the highest average annual returns over the last several decades? Can we conclude that return and risk are related in real life? The purpose of this question is to check student understanding of the capital market history discussion of the chapter, as well as to reiterate the concept of the riskreturn tradeoff. The securities categories discussed in the chapter are listed below in descending order of historical returns (and risk): 1. small pany stocks 2. large pany stocks 3. longterm corporate bonds 4. longterm government bonds 5. . Treasury bills By learning this hierarchy, and given that they are familiar with the attributes of each security, students should be left with little doubt that the maxim “The greater the risk, the greater the return” is an apt description of financial markets.LESSONS83. What are the lessons learned from capital market history? What evidence is there to suggest these lessons are correct? First, there is a reward for bearing risk, and second, the greater the risk, the greater the reward. As evidence, the students should provide a brief discussion of the historical rates of return and standard deviation of returns of the various asset classes discussed in the text.EFFICIENT MARKETS84. Explain why it is that in an efficient market, investments have an expected NPV of zero. In an efficient market, prices are “fair” so that the cost of an investment is neither too high nor too low. Thus, on average, investments in that market will yield a zero NPV. Investors get exactly what they pay for when they buy a security in an efficient market and firms get exactly what their stocks and bonds are worth when they sell them.EFFICIENT MARKETS85. Do you think the lessons from capital market history will hold for each year in the future? That is, as an example, if you buy small stocks will your investment always outperform . Treasury bonds? The student should realize that we are working with averages, so they should not expect riskier assets to always outperform less risky assets. The student should explain somewhere in their answer that this gets to the heart of what risk is. That is, the reason you expect to earn a higher return over the long haul is that your variability in price from year to year can be significant.RISK AND RETURN86. Suppose you have $30,000 invested in the stock market and your banker es to you and tries to get you to move that money into the bank’s certificates of deposit (CDs). He explains that the CDs are 100% government insured and that you are taking unnecessary risks by being in the stock market. How would you respond? The usual response is that bank CDs typically will offer a very low rate of return because of their low level of risk. Even if students do not know the relationship between yields on CDs and historical returns on stocks, they should recognize that because of the risk differences the CDs must have a lower expected return. So, if the investor in the question is willing to trade off some safety in order to have the chance to earn larger returns, the stock market is the correct investment.MARKET EFFICIENCY87. Suppose your cousin invests in the stock market and doubles her money in a single year while the market, on average, earned a return of only about 15 percent. Is your cousin’s performance a violation of market efficiency? No, market efficiency does not preclude investors from “beating the market.” It is entirely possible to earn higher returns than the market at times. However, if your cousin is able to do so consistently, then there would certainly be some doubt cast upon market efficiency.INSIDER TRADING88. How do you think the stock market would be affected if the laws were changed so that trading on insider information was no longer illegal? What would be the impact on the goal of the financial manager if such a change were to occur? This openended question allows students to ponder market efficiency from a different angle. By allowing insiders to trade on their information, it。 percent d. percent。 percent b. percent。 percent e. percent。 percent c. percent。 accuratelyMARKET EFFICIENCYd 46. In an efficient market, the price of a security will: a. always rise immediately upon the release of new information with no further price adjustments related to that information. b. react to new information over a twoday period after which time no further price adjustments related to that information will occur. c. rise sharply when new information is first released and then decline to a new stable level by the following day. d. react immediately to new information with no further price adjustments related to that information. e. be slow to react for the first few hours after new information is released allowing time for that information to be reviewed and analyzed.MARKET EFFI