The Difference Between the Efficient Markets Hypothesis and the Stronger

question 6

Multiple Choice

The difference between the efficient markets hypothesis and the stronger version of the efficient markets hypothesis is that

• A)although both theories hold that financial prices are equal to optimal forecasts, the stronger version holds that the optimal forecast is also the fundamental value of the financial instrument.
• B)the efficient markets hypothesis uses adaptive expectations while the stronger version uses rational expectations.
• C)according to the efficient markets hypothesis, prices are equal to optimal values only in equilibrium, while according to the stronger version, prices are always equal to optimal values.
• D)according to the efficient markets hypothesis, prices are always equal to optimal values, while according to the stronger version, prices are equal to optimal values only when markets are in equilibrium.

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Definitions:

Direct Labor-Hours

The cumulative hours spent by workers who are directly engaged in creating products, serving as the foundation for distributing labor expenses among products.

Activity-Based Costing

A pricing approach that allocates overhead and indirect expenses to associated goods and services according to their consumption of resources.

Predetermined Overhead Rate

A projected rate employed to assign manufacturing overhead expenses to particular products or job orders, utilizing a defined activity base for allocation.

Job-Order Costing System

A method of cost accounting in which costs are assigned to specific jobs or orders, used in manufacturing custom products or services.