Question: 1. Coming out of the depression, small stocks in the U.S. earned their highest one year historical return of 143% in 1933. However, in the four years prior to that you would have lost (going from 1929 to 1932, in order) about 50%, 40%, 50%, and 5%. Suppose
you started into this five year stretch with $10,000 invested. How much did you still have heading into 1933? How much would you have at the end of that year? Based on these numbers, do you think the 143% return should be included in the return series?
2. Discuss the impact of the formation of the Euro on potential arbitrage opportunities.
3. Positive NPV projects enhance shareholder wealth. However, in some cases the payment of dividends limits the number of positive NPV projects a firm can take. Why, then, shouldn't shareholders prefer a residual dividend policy?
4. You own 100 shares of stock in SplitsVille Corp. Over the past three days, SplitsVille has done the following: It first split its stock 2-for-1. One day later it declared a 100% stock dividend. After one more day it executed a 1-for-4 reverse split. If you did not buy or sell any shares in the firm over this period, how many shares of stock did you have after EACH transaction? What would you assume happened to the price of the firm's stock as a result of these activities?