Ch. 4 - Stocks

Question 1

Working Capital

Answer 1

Working Capital = Cash + Inventory + Accounts Receivable - Accounts Payable

Question 2

Weak Form of Efficient Market Hypothesis (EMH)

Answer 2

The fact that the past is irrelevant and the future is not predictable. Only the current price is important.

Question 3

Semi-strong form of Efficient Market Hypothesis

Answer 3

Considers how fast the market incorporates publicly-released information into prices

Question 4

Strong form of the Efficient Market Hypothesis

Answer 4

All information (public and private) built into prices. Undesirable due to insider trading.

Question 5

How do debt and equity compare in terms of risk levels?

Answer 5

Debt is less risky than equity; though debt has lower returns