Assuming that the stock market is efficient, is each of the following statements

Question

Assuming that the stock market is efficient, is each of the following statements true or false (to receive full credit, you must explain why in two or three sentences or with an example)?

1) The stock price of Company X doubled over the past year, the stock price of Company Z decreased by over 50%. Company X is the better stock investment today.

2) The stock price of Company X doubled over the past year, the stock price of Company Z decreased by over 50%. The market increased by 10%. The two stocks must have different Betas.

Explanation / Answer

1) The stock price of Company X doubled over the past year, the stock price of Company Z decreased by over 50%. Company X is the better stock investment today.

False

Note : The market is effecient so it wont be decision making through past year experience , There is additional information needed to know which stock is better investment.

2) The stock price of Company X doubled over the past year, the stock price of Company Z decreased by over 50%. The market increased by 10%. The two stocks must have different Betas.

True

Note : As Market Increase by 10% and Company X is increase by 100% that means its beta is greater than 1 where as Company Z decreased by over 50% that means its beta is less than 1, Therefore these two stock has different betas

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