If Stock Prices Follow a Random Walk

question 15

Multiple Choice

If stock prices follow a random walk,

• A) it implies that investors are irrational.
• B) it means that the market cannot be efficient.
• C) price levels are not random.
• D) price changes are random.
• E) price movements are predictable.

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Definitions:

Liabilities

Financial obligations or debts owed by a company to external parties or creditors that must be settled over time through the transfer of economic benefits.

Stockholders' Equity

The ownership interest of stockholders in the assets of a corporation, calculated as total assets minus total liabilities.

Accruals

Accounting adjustments for revenues that have been earned but are not yet recorded in the accounts, and for expenses that have been incurred but are not yet recorded.

Incurred

This term refers to the recognition of costs or expenses in accounting when a company commits to them through its operations, regardless of when payment is made.