Following the Theory of the "Efficient Market Hypothesis" All of the Following

question 15

Multiple Choice

Following the theory of the "efficient market hypothesis" all of the following are true EXCEPT

• A) securities are typically in equilibrium, meaning they are fairly priced and their expected returns equal their required returns.
• B) since stocks are fully and fairly price, it follows that investors should not waste their time trying to find and capitalize on miss- priced (under- or over- valued) securities.
• C) insider trading scandals have proven that stocks are not fully and fairly priced; as a result, it would be worthwhile for investors should spend time searching for mispriced (over- or under- valued) stocks.
• D) at any point in time, security prices fully reflect all public information available about the firm and its securities, and these prices react swiftly to new information.

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Definitions:

LIFO Inventory Method

An accounting method that assumes the most recently produced items are sold first and uses those costs for accounting.

Increasing Unit Costs

Refers to a situation where the expenses associated with producing each additional unit of a product or service rise over time.

Lower Income Taxes

Strategies or circumstances that result in a reduction of the amount of income taxes a person or company owes.

Goods Available for Sale

The total quantity of goods that a company has in its inventory available to be sold during a specific period.