According to the Efficient Market Theory

question 2

Multiple Choice

According to the efficient market theory,

• A) prices of actively traded stocks can be under- or over-valued in an efficient market, and bear searching out.
• B) prices of actively traded stocks can only be under-valued in an efficient market.
• C) prices of actively traded stocks do not differ from their true values in an efficient market.
• D) prices of actively traded stocks can only be over-valued in an efficient market.

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Definitions:

Cost-volume-profit Analysis

A managerial accounting method used to estimate the impact of different levels of cost and volume on operating profit.

Mixed Costs

Expenses that have both fixed and variable components, changing in total with activity level but not directly proportional.

Variable Costs

Variable costs are expenses that change in proportion to the activity or volume of a business, such as raw materials and labor costs that vary with production levels.

Contribution Margin

Contribution margin represents the difference between sales revenue and variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.