05 Jun Question 1. 1. What are the four different types of markets? Di
Question
1. 1. What are the four different types of markets? Discuss their basic differences.
2. 2. Explain the advantages and disadvantages of electronic communication networks (ECNs)?
3. 3. You want to buy a share of Acme Corp. stock. Your on-line broker shows a bid price of $30, and has a big-ask spread of $.50. Assuming you buy “at the market” (i.e., at the prices currently quoted) how much will you pay for a share of the stock? How much will the seller of each share that you buy receive? Explain.
4. 4. What are “dark pools”? Explain some of the risks involved in trading through a dark pool.
5. 5. What is meant by the term “rational arbitrageur”? Explain what role rational arbitrageurs play in the foundations of EMH.
6. 6. On September 1, DigitalToiletPaper.com (don’t ask) will be at one of the prices shown below, with probabilities as shown below. Calculate the current price of the stock.
Probability
0.05
0.25
0.3
0.3
0.1
Price
$20
$35
$50
$55
$65
7.JetBlue Airways Corporation (JBLU) reports the following in its latest quarterly report:
Authorized shares 500,000,000
Shares issued 317,391,718
Shares outstanding 290,305,387
A.How many shares are in the treasury stock?
B.If the float is 280,700,408 shares, find the number of restricted shares.
C. Recently, JBLU closed at $5.51 per share. Based on this price, find the market capitalization of the company.
8. What is the beta of a stock with an expected return E(ri) = 18%, when the risk-free rate rF = 6%, and the expected market return E(rM) = 14%? Show your work.
9. True or false? Explain: Stocks with a beta of zero offer an expected rate of return of zero.
10. Suppose the rate of return on short-term government securities (perceived to be risk-free) is 5%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 12%. According to the CAPM, what is the expected rate of return on the market portfolio?
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