Market Failure Is Said to Occur Whenever

question 131

Multiple Choice

Market failure is said to occur whenever

• A) competitive markets do not allocate resources in the most economically desirable way.
• B) prices rise.
• C) some consumers who want a good do not obtain it because the price is higher than they are willing to pay.
• D) government intervenes in the functioning of competitive markets.

Understand the calculation of required returns on stock using dividend forecasts and growth models.

Understand the significance of preemptive rights and its implications for shareholder value.

Interpret the concept of dual-class shares and its effect on shareholder control.

Apply the Gordon Growth Model to estimate a stock's price based on its dividend growth.

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Definitions:

Market Portfolio

A theoretical bundle of investments that contains all available assets in the market, representing the entire investment universe at a given time, used in financial theory to model returns.

Jensen's Measure

A performance evaluation tool that measures the excess return a fund generates over its expected return, given its risk level.

Risk-Free Return

The return on an investment that is guaranteed not to result in any loss, often associated with government securities.

M2 Measure

A broad measure of money supply that includes cash, checking deposits, savings deposits, money market securities, mutual funds, and other time deposits.