Money and Banking - Assignment Example

Money and Banking The ment is false because the Gordon formula (constant dividend growth) for the calculation of the fundamental price of a stock is usually based on the assumption that the dividend growth is never equal or more than the required rate of return. This allows the accurate computation of the dividend growth.2The statement is true because the stock prices portray a random walk. This is because the prices of the prices are never predicted with certainty because the stock prices are usually independent of each other.

In this regard, some aspect of risk must be accepted due to the speculative nature of the stock price trend.3The statement is false.The capital asset pricing model functions on the assumption that all the involved stocks in the investment portfolio are risk-averse. The investors who apply the model in the determination of stock portfolio are price takers.4The statement is false. Stock price can never be predicted with certainty because of the volatility of the economic environment. Additionally, the prices of different companies are independent of each other.

The economic dynamism does not favor all stock. This explains that the ‘hot’ stock tips are not valuable.5The statement is false.During a financial crisis, there is a liquidity problem. The problem requires the acquisition of sufficient funds to resolve the crisis. The repurchase of the shares of the commercial banks is not prudent.6The statement is true An increase in the return on equity reflects the high performance of a bank. Good performance indicates that the senior executives are running the bank in an efficient and effective manner.

The return on equity indicates the marginal return of the use of the shareholders holding in the bank.7The statement is false The market conditions do not favor only specific performer. The market is usually dynamic given the fact that the market players face unsystematic risks in the course of their operations. This makes different firms emerge winners in different periods.