Which of the Following Is an Implication of Market Efficiency

question 105

Multiple Choice

Which of the following is an implication of market efficiency?

• A) Resources are allocated among firms that put them to the best use.
• B) No investor will do better than the S&P 500 in any time period.
• C) No investor will do better than the S&P 500 consistently after adjusting for risk.
• D) No investor will do better than the S&P 500 consistently after adjusting for risk and transactions costs.

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Definitions:

Factory Depreciation

The allocation of the cost of a factory's physical assets over its useful life, recognizing the assets' wear and tear, deterioration, or obsolescence.

Property, Plant, and Equipment

Long-term tangible assets owned by a business, used in its operations to generate income, usually including buildings, machinery, and vehicles.

Net Operating Income

An indicator of a firm's earnings derived from its primary, ongoing business activities, not taking into account the subtraction of interest and taxes.

Retained Earnings

The portion of a company's profits that is saved or retained for reinvestment in the business, rather than being paid out as dividends to shareholders.