1) Explain the relationship(if any) between the EMH, the asymmetric view, and the CAPM.
2) What is the purpose of the schematic starting with financing sources for the firm, to macro-financial factors such as fiscal and monetary policy? Could the 2007-2010 financial crisis be forecasted by the elements of the schematic?
3) Discuss the similarities and the difference between the CML and the CPM.
5) Discuss the role of indifference curves and the efficient frontier in constructing You are valuing a firm with a “pro forma” (i.e., with your forward projection of what the cash flows will be). The firm just had cash flows of $1,000,000 today. This year, it will be growing by a rate of 20% per annum. That is, at the end of year 1, the firm will have a cash flow of $1.2 million. In each of the following years, the difference between the growth rate and the inflation rate of 2% will (forever) halve. Thus, from year 1 to year 2, the growth rate will be 2% + (20% – 2%)/2 = 11%, so the next cash flow will be $1,200 · 1.11 = $1,332 at the end of year 2. The following year, the growth rate will be 2% + (11% – 2%)/2 = 6.5%, and the cash flow will be $1,419 at the end of year 3. The growth will be less every year, but it will never reach the inflation rate of 2% perfectly. Next, assume that the appropriate discount rate for the firm this risky is a constant 12% per year. It is not time-varying. (The discount rate on the $1.2 million cash flow is 12%. The total discount rate for the $1,332 cash flow in year 2 is thus 25.4%, and so on.) What do you believe the value of this firm to be? ? (Hint: It is common in pro formas to project forward for a given number of years, say, 5 to 10 years, and then to assume that the firm will be sold for a terminal value, assuming that it has steady growth.)the CML. Also discuss the components of the CML equation.