1. (a) It is generally believed that mature financial markets (e.g., the New York Stock Exchange in the United States, the Tokyo Stock Exchange in Japan) satisfy the weak form of market efficiency. Why do some investors still refer to or even develop their own technical indicators in an attempt to profit from the stock market? [3 marks] (b) The tourism industry has taken a hard hit following the COVID-19 pandemic. Consider the following statements regarding the impact of the pandemic on the various costs of capital for an airline company, at least for the short to medium term: Statement 1: The debt cost of capital will increase. Statement 2: The equity cost of capital will increase. Among the four options below, select one that you think is correct. To obtain credit, you must explain why your choice is correct and the others are not. i. Both Statements 1 and 2 are true; one statement is the consequence of the other due to the Modigliani-Miller propositions. ii. Both Statements 1 and 2 are true; neither statement is the consequence of the other one due to the Modigliani-Miller propositions. iii. Only one of the two statements is true. iv. None of the statements is true. [4 marks] (c) Tesla, a major American electric vehicle company, revealed in a filing with the United States Securities and Exchange Commission on February 8, 2021 that the company has bought US$1.5 billion worth of bitcoin, a cryptocurrency. Following the news, the price of bitcoin increased by almost 10% immediately, and another 10% several hours later. Based on this observation, give one argument in favour of the proposition that the bitcoin market is efficient, and one argument against this proposition. [4 marks] [Total: 11 marks] 1. (a) It is generally believed that mature financial markets (e.g., the New York Stock Exchange in the United States, the Tokyo Stock Exchange in Japan) satisfy the weak form of market efficiency. Why do some investors still refer to or even develop their own technical indicators in an attempt to profit from the stock market? [3 marks] (b) The tourism industry has taken a hard hit following the COVID-19 pandemic. Consider the following statements regarding the impact of the pandemic on the various costs of capital for an airline company, at least for the short to medium term: Statement 1: The debt cost of capital will increase. Statement 2: The equity cost of capital will increase. Among the four options below, select one that you think is correct. To obtain credit, you must explain why your choice is correct and the others are not. i. Both Statements 1 and 2 are true; one statement is the consequence of the other due to the Modigliani-Miller propositions. ii. Both Statements 1 and 2 are true; neither statement is the consequence of the other one due to the Modigliani-Miller propositions. iii. Only one of the two statements is true. iv. None of the statements is true. [4 marks] (c) Tesla, a major American electric vehicle company, revealed in a filing with the United States Securities and Exchange Commission on February 8, 2021 that the company has bought US$1.5 billion worth of bitcoin, a cryptocurrency. Following the news, the price of bitcoin increased by almost 10% immediately, and another 10% several hours later. Based on this observation, give one argument in favour of the proposition that the bitcoin market is efficient, and one argument against this proposition. [4 marks] [Total: 11 marks]