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Finance: Fair Markets and Assessing Risk

An important aspect of the decision-making process is the consideration of risks associated with the options in an opportunity set. Measuring the risk of available options can drastically alter the decisions made by an organization's senior management team.

Are markets like the NYSE, NASDAQ, and CME fair markets? Why? Why is it important that such markets are fair markets? In your response, be sure to assess the relationship between market prices and discount rates used in decision making.

Compare a real estate investment in Baghdad with a similar investment in Chicago. What are the appropriate risk-adjusted discount rates for each? How do the risks differ between them?

Would a fast-food a restaurant chain like McDonald's incur more risk by offering a new sandwich or opening a new store? Why?

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Fair Markets and Assessing Risk

First, from my personal experience in investing - buying and selling - of stocks in one of these markets, I would say that they are fair. After all, no investor would be willing to buy or sell at a given price if it is not fair and if prices are not fair, then we can conclude that the market itself is not fair. However, some would argue that NYSE, NASDAQ, and CME are not fair markets. Given the increasing capacity of technologies such ...

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This solution provides a detailed discussion of the given finance problem.