When the Stock Price Follows a Random Walk the Price

question 34

Multiple Choice

When the stock price follows a random walk the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

• A) a predictable amount based on the past prices.
• B) a component based on new information unrelated to past prices.
• C) the security's risk.
• D) the risk free rate.

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Definitions:

Retailer

A retailer is a business or person that sells goods directly to consumers for personal or household consumption.

Short-Term Financing Policies

Strategies a company uses to manage its immediate or short-term financial needs and operational expenses.

Conservative Financing Policy

A financial strategy that prioritizes safety and liquidity, often characterized by maintaining high cash reserves and using less leverage.

Trade Credit

An agreement in which a customer can purchase goods or services on account, paying the supplier at a later scheduled date.