The Random Walk Theory of Stock Prices Indicates That

question 345

Multiple Choice

The random walk theory of stock prices indicates that

• A) if they are willing to do a little research, even beginning investors will be able to pick the stocks that will increase most in price in the future.
• B) managed mutual funds will persistently earn a higher rate of return than indexed funds.
• C) current stock prices already reflect information about factors influencing future stock prices that can be forecast with any degree of accuracy.
• D) stock market investors can expect to earn a steady real rate of return of about 7 percent annually.

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Definitions:

Utility Level

An assessment of contentment or joy obtained by a customer from using products and services.

Oreos

A brand of popular sandwich cookies consisting of two chocolate wafers with a sweet cream filling.

Ordinary Goods

Products or services whose demand increases when consumer income rises, and falls when consumer income decreases.

Coffee

A brewed drink prepared from roasted coffee beans, which are the seeds of berries from the Coffea plant, and a significant commodity in global trade.