To Say That Stock Prices Follow a "Random Walk" Is

question 26

Multiple Choice

To say that stock prices follow a "random walk" is to argue that stock prices

• A)rise,then fall,then rise again.
• B)rise,then fall in a predictable fashion.
• C)tend to follow trends.
• D)cannot be predicted based on past trends.

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Definitions:

Call Contract

An agreement that gives the option buyer the right, but not the obligation, to buy a specified quantity of an asset at a predetermined price within a certain time frame.

Put Contract

A financial contract giving the holder the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.

Writer of a Call Option

The individual or entity that sells a call option and has the obligation to sell the underlying asset at the set strike price if the option is exercised.

Buyer of a Put Option

An investor who acquires the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a set time frame.