Assume That Markets Are Semistrong Efficient, but Not Strong-From Efficient

question 27

Multiple Choice

Assume that markets are semistrong efficient, but not strong-from efficient. Which of the following statements is most correct?

• A) Each common stock has an expected return equal to that of the overall market.
• B) Bonds and stocks have the same expected return.
• C) Investors can expect to earn returns above those predicted by the SML if they have access to public information.
• D) Investors may be able to earn returns above those predicted by the SML if they have access to information which has not been publicly revealed.
• E) Answers b and c are correct.

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Definitions:

IFRS

International Financial Reporting Standards, which are global accounting standards for preparing financial statements.

Liquidity

A measure of a company's or individual's ability to meet short-term obligations, often associated with the ease of converting assets into cash.

Liabilities

Financial obligations or debts that a company owes to external parties, which must be settled over time through the transfer of assets, provision of services, or other value.

Effective-Interest Method

An accounting technique used to amortize the discount or premium on bonds payable over the life of the bonds, more precisely matching interest expense with the accounting periods in which they are incurred.