Calculate the certainty equivalent cash flow for year

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Problem 1: Which of the following observations would provide evidence against the strong form of efficient market theory?

Option 1: Mutual fund managers do not on average make superior returns.
Option 2: In any year, approximately 50 percent of all pension funds outperform the market.
Option 3: Managers who trade in their own firm's stocks make superior returns.
Option 4: Mutual fund managers do not on average make superior returns and,In any year, approximately 50 percent of all pension funds outperform the market.


Problem 2: A project has an expected risky cash flow of $500 in year 2. The risk-free rate is 4 percent, the expected market rate of return is 14 percent, and the project's beta is 1.20. Calculate the certainty equivalent cash flow for year 2, CEQ2.

Option 1: $622.04
Option 2: $164.29
Option 3: $401.90
Option 4: $416.13

Reference no: EM132907871

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