Noah Values His Car at $10,000, and Emily Values It

question 40

Multiple Choice

Noah values his car at $10,000, and Emily values it at $14,000. If Emily buys it from Noah for $11,000, which of the following is true?

• A) Noah gains $1,000 of value, and Emily gains $3,000 of value.
• B) Noah gains $11,000 of value, and Emily loses $11,000 of value.
• C) Noah gains $10,000 of value, and Emily loses $14,000 of value.
• D) Noah and Emily both gain $11,000 of value.

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Definitions:

Inefficient Market

A market in which asset prices do not always accurately reflect all available information, potentially allowing investors to earn abnormal returns.

Maurice Kendall

Maurice Kendall was a British statistician known for his significant contributions to the field of statistics, including work in time series analysis and the development of the Kendall rank correlation coefficient.

Stock Returns

The gain or loss made from trading a stock, usually measured as the change in capital plus dividends in a given period.

EMH

The Efficient Market Hypothesis, a theory stating that stock prices fully reflect all available information, making it impossible to consistently achieve higher returns.