Which of the Following Is a Correct Statement of the Efficient

question 19

Multiple Choice

Which of the following is a correct statement of the efficient markets theory of stock price movements?

• A) unpredictable fluctuations in share prices can occur only as the result of irrational behavior by investors
• B) volatility in share prices imply a perfectly functioning stock market
• C) if the stock market is efficient, stock prices will display an unpredictable, random path
• D) predicting changes in investor expectations permits forecasts of future share prices despite random drift
• E) economic fundamentals (interest rates and corporate profits) determine the fluctuations in stock prices around a trend created by psychological factors

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Definitions:

Psychological Needs

Fundamental human requirements such as love, esteem, belonging, and self-actualization that are essential for mental health and well-being.

Distress

A situation where a person, business, or economy is undergoing severe strain, often due to financial difficulties.

Uncertain Outcome

A situation where the result cannot be predicted with precision due to variables that are not completely known or controllable.

Fear

An emotional response to a perceived threat, which can be real or imagined, and impacts both individuals and groups.