Corporate Finance

Corporate Finance

Student Name

Professor Name

24th May, 2014

Answer 1)

Important to note that the value of the Certificate of Deposit increase in value in relation with the inflation rates, i.e. CD always track inflation rates. Thus, if during 2007 the inflation rate in the US was 4.1% and the average return in a Certificate of Deposit (CD) was 3.65%, in such case it would have been rational for the investor to invest in CD as the value of CD would have increased in par to 4.1% inflation rate

Answer 2)

I totally disagree with the statement as it only depends upon the individual as how they are playing in the stock market. An individual can be described as an investor or gambler depending upon the methodology he is following while playing in the stock market. For Instance, if the individual is buying a stock just because it has shown an increasing trend in recent days or just because some of his friends has recommended, of course, it will be a pure gambling. However, if the individual place his investment order on the basis of the stock fundamentals or on the basis of research reports, then it cannot be referred to as Gambling, and it will be as pure as a rational investment.

Furthermore, referring to stock investment as against social activity is again a false statement as the capital flow process of the financial market promotes economic development of the nation and thus creating new employment opportunities, providing a base for a grooming society.

Answer 3)

Following are three different form of efficient market hypothesis:

Weak form market efficiency:

This form of market efficiency claims that the current stock prices reflect all the historical market data related to past prices and trading volumes. Thus, it is impossible for an investor or group of investor to earn supernormal or excess profits using past prices of the stock. Thus, using technical analysis will be of no help for the purpose of outperforming the market.

Semi-Strong market...