Explain hypothetical situation and a fictitious example

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a. "You should not invest in real estate now, if in the last three years house prices have increased 15% every year, because the market is likely to be in a bubble." [Please notice that neither this statement refers to the Norwegian housing market, nor does it refer to any other real-world example for housing markets worldwide in any period of time. It is only a hypothetical situation and a fictitious example.] Would you agree with this statement, and why?

b. "The predictability of stock returns based on the dividend-to-price ratio implies that financial markets are, at least to some extent, inefficient. Market mispricing exists because higher returns can be forecast and achieved by investing in stocks with higher dividend-to-price ratios". Would you agree with this statement, and why?

Reference no: EM133114710

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