In the Context of the Various Strategies for Investing in Securities

question 117

Multiple Choice

In the context of the various strategies for investing in securities, which of the following is a drawback of value investing?

• A) It requires investors to buy expensive stocks.
• B) The competition to locate undervalued stocks is intense.
• C) Investors do not have much time for research as they need to make frequent trades.
• D) It requires investors to invest without knowing the discrepancies between a firm's true value and its current market price.

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Definitions:

Sacrifice Ratio

The number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point.

Inflation

An increase in the overall level of prices in the economy

Output

The amount of goods or services produced by a firm, industry, or economy over a given period.

Sacrifice Ratio

A measure of the economic cost of reducing inflation, calculated as the percentage of annual output lost per one percentage point reduction in inflation.