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UGB363 Ignoring tax and the time-value of money between days 1 and 20, and assuming the details: strategic corporate finance Assignment, UM, Malaysia

Part B

Required:

(a) Ignoring tax and the time-value of money between days 1 and 20, and assuming the details given are the only factors having an impact on the share prices of A and B, determine the day 2, day 6, and day 12 share prices of A and B if the market is:
1. Semi-strong form efficient, and
2. Strong form efficient
In each of the following circumstances:
(i) the purchase consideration is cash as specified above, and (5 marks)
(ii) the purchase consideration, decided upon on day 2, and publicly announced on day 6, is one newly issued share of A for each share of B. (10 marks)
Alan’s guidelines: Please refer to class practice exercise

(b) “A market in which prices always “fully reflect” available information is called “efficient”. The ideal is a market in which prices provide accurate signals for resource allocation.”

Required:
Critically evaluate the above statement, ensuring the response is supported with relevant empirical evidence. Discuss whether the capital market in Hong Kong is considered to be an efficient market.
(Alan’s guidelines: Students need to explain what is Efficient Market Hypothesis and the meanings of its three forms with one example you can think of for each form (e.g. “semi-strong form EMH means ………, and for example, if semi-strong form EMH holds, then an analyst who ………. Will not be able to earn extra return by………..)
In addition, you need to critically evaluate each level of market efficiency by referring to academic empirical evidence on the Hong Kong Stock Market, and you need to express your own views on these findings.)

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