Investment

1. a)

Regression Statistics |

Multiple R | 0.264374062 |

R Square | 0.069893645 |

Adjusted R Square | 0.064222264 |

Standard Error | 0.082981127 |

Observations | 166 |

ANOVA | | | | | |

　 | df | SS | MS | F | Significance F |

Regression | 1 | 0.084860891 | 0.084860891 | 12.3239215 | 0.000577579 |

Residual | 164 | 1.129282272 | 0.006885868 | | |

Total | 165 | 1.214143162 | 　 | 　 | 　 |

　 | Coefficients | Standard Error | t Stat | P-value | Lower 95% | Upper 95% | Lower 95.0% | Upper 95.0% |

Intercept | 0.0179 | 0.0173 | 1.0320 | 0.3036 | -0.0164 | 0.0522 | -0.0164 | 0.0522 |

X Variable 1 | 0.2395 | 0.0682 | 3.5105 | 0.0006 | 0.1048 | 0.3743 | 0.1048 | 0.3743 |

b) coefficient=0.2395

change in the market expected return=0.2395*0.0682=0.0163339

c) H0: AC equals to zero.

Since p-value is less than 2.5%, we are 95% confident that the estimated coefficient is statistically different from zero.

d) It is a violation of the random walk hypotheses, because E(R) is not a constant.

e) It is a violation of the semi-strong form market efficiency. Semi-strong form market efficiency means that all the public available information is reflected in the current stock price and one can not predict future return without any new information. Because AC is public information and one can use it to predict future return, and it is not related to any measure of risk, it is a violation of the semi-strong form market efficiency.

2. dividend=$1.22 g=5% p=$32.03

v0=D01+gk-g=1.22*1.05k-0.05=32.03

k=0.08999

3. a)

v0=D1k-g=50.15-g=100

g=10%

b) g=5%

v0=D1k-g=50.15-0.05=50

The price of MS would drop to $50, and the dividend-price ratio would rise from 0.05 to 0.1

4. a)

v0=D1k-g=1k-0.1=10

k=0.2

b)if nothing were reinvested, then dividend growth rate would be 0.

v0=D1k-g=20.1-0=20

(20-10)/10=100%

So the price will exceed its real value by 100%.