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    One basic investing tenet is that prices appreciate to reflect the earnings power of a
    stock. Fast growing stocks should therefore outperform slow growing stocks. Suppose
    we classify stocks into 2 categories today: high growth stocks and low growth stocks.
    We can then form two groups of stocks that have the same beta - a group of high
    growth stocks and a group of low growth stocks. In an efficient market, the group of
    high growth stocks is expected to provide a higher expected return than the group
    of low growth stocks.

    Question1 Clearly state whether the above statement (in italics) is 'true' or 'false'.

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    Solution Preview

    It is a very tricky question.

    The statement is false. The discounting rate for a high growth stock is higher than the low growth stock and given the same ...

    Solution Summary

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