Haugen concluded that the market overreacts - with a lag and that "we apparently have a market that is slow to overreact."

Management's analysis of the past year is found in the company's annual report. However, since the annual report must be filed with the SEC on Form 10-K, management's analysis can also be found in the 10-K. Answer C, both of these, is correct.

The difference between the yield on an on-the-run Treasury security and a non-Treasury issue of similar maturity is frequently referred to as simply the "yield spread." Further, since non-Treasury sectors of the fixed income market nearly always offer a spread to similar Treasury issues, non-Treasury sectors are referred to as "spread sectors" and securities in these sectors are referred to as "spread products."
There are many measures of yield spread; the most common measures include the absolute yield spread, the relative yield spread, and the yield ratio. Each of these methods is detailed below: {Absolute yield spread = [yield on security A - yield of on-the-run Treasury]} {Relative yield spread = [(yield on security A - yield of on-the-run Treasury) / yield of on-the-run Treasury} {Yield ratio = [Yield on security A / yield of on-the-run Treasury]}
Remember that while the most useful measures of relative yield spread (for purposes of risk analysis) is to measure a spread product against a comparable on-the-run Treasury issue, measures of yield spread can be calculated for any two debt securities, regardless of maturity, coupon, yield, or issuer. In this example, all of the necessary information has been provided, and the calculation of each measure of yield spread is as follows:
{Relative yield spread = [(0.0734 - 0.0512) / 0.0512]] = 0.43359}, or 43.4% {Absolute yield spread =
[0.0734 -0.0512] = 0.0222}, or 222 basis points {Yield ratio = [0.0734 / 0.0512] = 1.43359}, or 1.43

Opportunity cost is the only determinant of comparative advantage.