An Efficient Capital Market Is One in Which

question 34

Multiple Choice

An efficient capital market is one in which:

• A) Security prices reflect available information.
• B) Risky securities offer a positive rate of return to investors.
• C) Information is distributed fairly.
• D) After-tax returns are equalized.
• E) Prices fluctuate smoothly.

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Definitions:

Internal Rate of Return

A metric used in financial analysis to estimate the profitability of potential investments, representing the rate at which the net present value of costs equals the net present value of benefits.

Discount Rate

In the context of discounted cash flow analysis, this rate helps in assessing the present value of future cash flows.

Profitability Index

A calculation that determines the relative profitability of an investment by dividing the present value of future cash flows by the initial investment cost.

Average Accounting Return

A financial ratio measuring the average net income an asset is expected to generate relative to its average book value.