A Market Decline of 23% on a Day When There

question 34

Multiple Choice

A market decline of 23% on a day when there is no significant macroeconomic event ______ consistent with the EMH because ________.

• A)would be; it was a clear response to macroeconomic news
• B)would be; it was not a clear response to macroeconomic news
• C)would not be; it was a clear response to macroeconomic news
• D)would not be; it was not a clear response to macroeconomic news This happened on October 19, 1987.

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Definitions:

Risk-Free Rate

The return on an investment with no risk of financial loss, typically associated with government bonds.

Expected Inflation

The anticipated rate at which prices of goods and services will rise over a period.

Spot Rate

The prevailing market rate at which a specific asset is available for purchase or sale with immediate effect.

Real Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing and the true return on lending.