The assignment are separated in two different sections (Section #1 only pertains to the PDF File)...

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The assignment are separated in two different sections (Section #1 only pertains to the PDF File) There are no actual calculations needed for this assignments/questions and answersSection #1Based on the PDF file Time Series of the Mean Price Index of the Share of 161 Target Firms Involved in Successful Tender Offers, answer all the questions listed below.   	Suppose in Figure 5.3 (see attached PDF) that the stock prices of target firms in acquisitions responded to acquisition announcements over a three-day period rather than almost instantly. ( Answer the five questions listed below)    	Would you describe such an acquisition market as efficient? Why or why not? 	Can you think of any trading strategy to take advantage of the delayed price response? 	If you and many others pursued this trading strategy, what would happen to the price response to acquisition announcements?  Some argue that market inefficiencies contain the seeds of their own destruction. In what ways does your answer to
	
Document Preview: InstructionsThe assignment are separated in two different sections (Section #1 only pertains to the PDF File) There are no actual calculations  needed for this assignments/questions and answersSection #1Based on the PDF file Time Series of the Mean Price Index of the Share of 161 Target Firms Involved in Successful Tender Offers, answer all the questions listed below.Suppose in Figure 5.3 (see attached PDF) that the stock prices of target firms in acquisitions responded to acquisition announcements over a three-day period rather than almost instantly. ( Answer the five questions listed below)Would you describe such an acquisition market as efficient? Why or why not?Can you think of any trading strategy to take advantage of the delayed price response?If you and many others pursued this trading strategy, what would happen to the price response to acquisition announcements?Some argue that market inefficiencies contain the seeds of their own destruction.  In what ways does your answer to this problem illustrate the logic of this statement, if at all?Immediately after some merger announcements, the stock price of the target firm jumps to a level higher than the bid price.  Is this proof of market inefficiency? What might explain this price pattern?Section #2 Suppose the realized rate of return on government bonds exceeded the return on common stocks one year.  How would you interpret these results?Two 20-year bonds are identical in all respects except that one allows the issuer to call the bond in return for $1,000 cash at any time after five years while the other contains no call provisions.  Will the yield to maturity on the two bonds differ? If so, which will be higher? Why?

David · Accepted Answer

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Assignment Title 
Student Name 
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Date
  2 
Section 1 
The market is inefficient as there was a delay in response to the announcement the stock price 
has increased. The advantage can be taken by purchasing the stock, hold and sell them after the 
market’s reaction so that they can book more profit. If more people are implementing the same 
strategy, then there will be no great opportunity to book the expected profit as the stock price 
will begin to increase well before the announcement date due to higher demand. There is 
inefficiency as it provides more opportunity for speculators to exploit the increase in stock price,

The assignment are separated in two different sections ( Section #1 only pertains to the PDF File) There are no actual calculations needed for this assignments/questions and answers Section #1 Based...

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