Following the Theory of the "Efficient Market Hypothesis" All of the Following

question 136

Multiple Choice

Following the theory of the "efficient market hypothesis" all of the following are true EXCEPT

• A) securities are typically in equilibrium, meaning they are fairly priced and their expected returns equal their required returns.
• B) insider trading scandals have proven that stocks are not fully and fairly priced; as a result, it would be worthwhile for investors should spend time searching for mispriced (over- or under-valued) stocks.
• C) at any point in time, security prices fully reflect all public information available about the firm and its securities, and these prices react swiftly to new information.
• D) since stocks are fully and fairly price, it follows that investors should not waste their time trying to find and capitalize on miss-priced (under- or over-valued) securities.

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Definitions:

Periodic Rate

The interest rate applied to a financial loan or savings account that is compounded at regular intervals over a period of time.

Effective Rate

The actual interest rate an individual pays on a loan or earns on an investment, after compounding and other charges are factored in.

Credit Card

A plastic card issued by a bank or financial institution allowing the holder to purchase goods or services on credit.

Effective Rate

The Effective Rate is another term for the Effective Annual Rate, highlighting the true return on an investment or the true interest rate on a loan, after compounding.