Security Prices Are Said to Follow a "Random Walk," Which

question 128

Multiple Choice

Security prices are said to follow a "random walk," which means that:

• A)Stock selection for portfolio composition is unimportant
• B)It is impossible to know whether stocks offer higher returns than bonds
• C)Investment analysts are unnecessary
• D)Successive price changes are unpredictable

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Definitions:

Compounded Annually

Interest calculation method where interest is added to the principal once a year, leading to an exponential increase.

Compounded Semiannually

The process of calculating interest on both the initial principal and the accumulated interest from previous periods, done twice a year.

Monthly Compounding

The process of computing interest on an amount where the calculated interest is added to the principal at the end of each month for the purpose of calculating future interest.

Nominal Rate

The stated interest rate of an investment or loan, without taking into account inflation or compounding of interest.