Two types of firms and their cost of raising capital

Assignment Help Financial Management

Reference no: EM131304576

In describing the work of hedge funds, financial journalist Sebastian Mallaby has observed: [Research] showed that the unglamorous "value" stocks were underpriced relative to overhyped "growth" stocks. This meant that capital was being provided too expensively to solid, workhorse firms and too cheaply to their flashier rivals. . . . It was the function of hedge funds to correct inefficiencies like this.

a. Explain what the first two sentences in this excerpt mean: What is the connection between the relative prices of these two types of firms and their cost of raising capital? Who is "providing" capital to these firms?

b. How can hedge funds correct this inefficiency?

Reference no: EM131304576

Questions Cloud

Have efforts in past been focused on the left of boom side : Have efforts in the past been focused on the left of boom side or the right of boom side of the incident spectrum? What is the focus now? Why?

What role did the various layers of aviation security play : What role did the various layers of aviation security play in preventing the attempted attacks after 9/11? Explain. Were the effective layers tactical, policy driven, or a combination of both? Explain.

Critically analyse the relative importance of the management : Identify and analyse the factors which influence capital budgeting decisions that required efficient investment decisions over competing concerns - Critically analyse the relative importance of the management intention to reduce too much of borrow..

What are the advantages of all of the recording devices : In addition, share your thoughts about recording devices on police cars and officer's uniforms. What are the advantages and disadvantages of all of these recording devices?

Two types of firms and their cost of raising capital : Explain what the first two sentences in this excerpt mean: What is the connection between the relative prices of these two types of firms and their cost of raising capital?

Create irac analysis according to information and nolan test : Create IRAC analysis according to the information and Nolan/Dolan Test. Please follow the instructions and all information above.

Who might you use for regular pepsi : Which celebrity would you use to endorse Diet Pepsi in attempts to reach a ‘different' target group?Who might you use for regular Pepsi? Diet Coke? Coke Classic? Sprite? Explain and justify your choice for each.

What is a contractual savings institution : What is a contractual savings institution? In what ways are contractual savings institutions similar to commercial banks? In what ways are they different?

Difference between a life insurance company and a property : In what ways are insurance companies financial intermediaries? What is the difference between a life insurance company and a property and casualty insurance company?

User Account

All Pages