Calculate the present value

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XYZ company's stocks are publicly listed.

(a) Investors can only obtain the historical data of XYZ's stock's price. Assume that the market for XYZ's stock is efficient in the weak form, and the fair risk-adjusted expected rate of return is 10%. If the expected price of XYZ's stock in the next trading day is $6.6, then what is the price of XYZ's stock today? [Hint: assume there is no frictions. Given the capital cost, how do you calculate the present value?]

(b) If the market is semistrong efficient. Friday afternoon at 2pm, XYZ announces to the public that it receives a huge donation. Assume that this is the only new public information on that day. Does the price of XYZ's stock at 1:55 pm differ from the price at 2:05 pm? Does the price of XYZ's stock at 2:10 pm differ from the price at 2:15 pm? Why?

Reference no: EM132407330

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