In Its Approximate Form the Fisher Effect May Be Written

question 3

Multiple Choice

In its approximate form the Fisher effect may be written as ________.Where: i = the nominal rate of interest,r = the real rate of return and π = the expected rate of inflation.

• A) i = (r)(π)
• B) i = r + π + (r)(π)
• C) i = r + π
• D) i = r + 2π

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Definitions:

Small-Firm Effect

The observed phenomenon that, on average, smaller firms have historically provided higher risk-adjusted returns than larger firms.

Book-To-Market Effect

The tendency for securities with high book-to-market ratios to outperform those with low ratios.

Semistrong Form

A theory in the Efficient Market Hypothesis that postulates all publicly available information is already reflected in stock prices, including historical data and new public information.

Efficient Markets Hypothesis

A theory suggesting that financial markets fully reflect all available information, making it impossible to consistently achieve higher returns than the market average.