Question

6. Which of the following statements is correct? (3 marks)

   1. a) Upon the public announcement of finding gold in Field X owned by Saskatoon Gold Minerals (SGM), the shares of SGM immediately soared 100% from $5 to $10 and over the next 2 days the price climbed another dollar per day to reach $13. This event suggests that the market for SGM shares is semi-strong efficient.

   2. b) The first statement in Part (a) suggests that the market for SGM shares is weakly efficient.

   3. c) The disastrous flood in Calgary few years ago is a good example of systematic risk.

   4. d) A portfolio that has shares from 30 different internet stocks is not a well-diversified portfolio.

   5. e) Investors who take risk will always be rewarded accordingly.

Answer 1

a)No, SGM shares are not semi-strong efficient, as the market got effected by public information.

b)Yes, it's true as public information affects the weakly efficient share.

c)No, the disastrous flood in Calgary a few years ago is not a good example of systematic risk, because it's was actually more catastrophic than what other floods actually were, so there were some unsystematic risks involved too.

d)Yes, the statement is correct, as this portfolio is actually not well diversified across industries. It's only concentrated in one.

e)No, it depends on what kind of risk they are taking, systematic or unsystematic.

So the correct statements are, B and D.