Given the Behavior of the Stock Market in Recent Years

question 2

Multiple Choice

Given the behavior of the stock market in recent years

• A) most economists still think the efficient markets hypothesis is an accurate description of the daily behavior of the stock market.
• B) most economists think the efficient markets hypothesis provides little insight into the behavior of the stock market.
• C) most economists think the rational investor can outperform the stock market in the long run.
• D) many economists still believe that it is unlikely that investors can hope to earn above-average returns in the stock market by following traditional strategies.

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Definitions:

CAPM Approach

Capital Asset Pricing Model, a framework used to determine the theoretical appropriate required rate of return of an asset, considering risk and the cost of capital.

Retained Earnings

The portion of a company's net income that is kept within the company rather than distributed to shareholders as dividends.

Target Capital Structure

The mix of debt, equity, and other securities a company aims to hold to finance its operations and investments.

Retained Earnings

Profits that a company keeps or retains rather than distributing to shareholders in the form of dividends, typically used for reinvestment.