If Markets Were Entirely Efficient (Perfect),which of the Following Would

question 37

Multiple Choice

If markets were entirely efficient (perfect) ,which of the following would we conclude?

• A) There would be no inflation.
• B) Book value would be the same as market value.
• C) No firms would ever default on their bonds.
• D) Market value and intrinsic value would be the same.

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Definitions:

Margin of Safety

The difference between actual or expected sales and sales at the break-even point. It measures how close a company is to not covering its fixed costs.

Break-even Sales

The amount of revenue from sales that exactly covers the fixed and variable costs of producing and selling a product, with no profit or loss.

Pretax Net Income

The amount of money a company has earned before taxes are deducted.

Fixed Costs

Expenses that do not fluctuate with the volume of production or sales, such as rent, salaries, and insurance.