If a Market Is Efficient, Then the Difference Between the Market

question 212

Multiple Choice

If a market is efficient, then the difference between the market value of an investment and its cost
is:

• A) Zero.
• B) Positive and greater than 1.
• C) Equal to the risk premium.
• D) Equal to the net present value of the cash inflows.
• E) Equal to the risk-free rate of return.

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Definitions:

Domestic Advantage

The competitive edge a company gains by operating within its home country, benefiting from familiar market conditions and regulations.

Comparative Advantage

The ability of a country, individual, company, or region to produce a good or service at a lower opportunity cost than its competitors.

Absolute

A term indicating complete or total, often used to signify purity, unconditioned reality, or an unchangeable fact.

Competitive

Describes a situation where businesses or individuals contest against each other to achieve leadership, market share, or win over customers.