If in an Efficient Market All Prices Are Correct and Reflect

question 60

Multiple Choice

If in an efficient market all prices are correct and reflect market fundamentals,which of the following is a FALSE statement?

• A)A stock that has done poorly in the past is more likely to do well in the future.
• B)One investment is as good as any other because the securities' prices are correct.
• C)A security's price reflects all available information about the intrinsic value of the security.
• D)Security prices can be used by managers to assess their cost of capital accurately.

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Definitions:

Least Squares Method

The method used to develop the estimated regression equation. It minimizes the sum of squared residuals (the deviations between the observed values of the dependent variable, yi, and the predicted values of the dependent variable, ŷi).

Observed Values

The actual measurements or data collected in an experiment or study.

Predicted Values

The outcomes or values estimated based on a mathematical model or prediction equation.

Y-intercept

The point on a graph where a line intersects the Y-axis, often used to represent the starting value of a relationship in linear equations.