The original annuity puzzle centered on Yaari's (1965) prediction that a rational investor
without a bequest motive would only purchase annuity assets.
In fact, a rational investor
will choose Asset A only if P(A / Ht, s)-pt > 0.
These empirical anomalies contradict the efficient market and rational investor
hypotheses that are basic to several pricing models.
The lesson: for a rational investor
who thinks in terms of the business behind the stock, the best time to buy is when it is available at a deep discount to its value.
Having taken into consideration the relative risk of making an investment into a particular business compared to investing the same money into a low risk, guaranteed return investment such as government bonds, the WACC represents the return or yield a rational investor
would reasonably expect to receive when investing money in that business.
In an interview published in Les Echos, on 12 July 2002, the French economy and finance minister said he was willing to take "in due time, if necessary, appropriate measures" in keeping with those a "fully informed private investor" would take, in other words, measures a "normal" rational investor
would take in a market economy, in keeping with EU state aid rules.
Required Rate of Return: Return that the rational investor
requires based on perceived risk of a particular investment.
Personal responsibility now requires the ability to be a disciplined, rational investor
in difficult times, and many investors cannot do this.
Scott incorporates an information economics perspective as the theoretical underpinning to examine accounting theory, embracing rational investor
decision making and the efficient market hypothesis as cornerstones for accounting decision making.
Economic logic dictates, and empirical evidence shows, that a rational investor
would not pay premiums of the magnitude paid by Bavaria and Cisneros for a passive minority investment, but potentially would pay such premiums for an investment that provides control over the target company," the report states.
13) If a public corporation were financed half by stock and half by bonds, a rational investor
holding the market portfolio would have his investment in that corporation divided evenly between its stock and its bonds.
713) dismiss this strategy on the grounds that the horizon of a rational investor
is shorter than "the duration of noise traders' misperceptions.