Discuss whether each of following statements is true or false and WHY

In the given question ,we have state if the statements given are True or False along with the reasons.

a) True :

It is true that the Mispricing of Palm 3com was due to the inability of the Investors to take short position. This is primarily due to the fact that Palm 3com performed an equity Carve out only to the extent of 5% of its holdings retaining the remaining 95% with itself. Owing to this majority of hodling being retained there wasnt enough shares available for taking short position & hence the mispricing continued till the spin off completed.

b) False

This isnt true becuase an efficient market vakue does nor essentially mean that market price is equal to its real value..As long as there are unbiased errors in market price.This resulting in deviation from its true value causing an even opportunity for the stock to be underpriced or overpriced enabling the managers to make money

c)   False

These two companies Royal Dutch Petroleum & Shell Transport & Trading listed & traded in two different stock exchange untill they joined hands in 60:40 proportion with the expectation of the price in same tandem .Unfortunately that was not to be with the investor could not take short position during over pricing & long during underpricing.There was an element of skeptism amongst the investors resulting in widening the price.

d) False

As per CAPM

Expected Returm = R_f + β(R_m -R_f) .From the given formula it is clear that the investorss can cover only systematic risks from this Expected return formula, In order to hold volatil stocks ,one should be able to cover unsystmatic risks which is not within the perview of CAPM .