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.

Understand the impact of transactions on owner's equity and company financial position.

Comprehend the basic accounting equation and how transactions affect it.

Master the calculation of net income or net loss from given financial data.

Identify internal and external users of accounting information and their needs.

---

Definitions:

Operating Leverage

The extent to which a company can increase operating income by increasing revenue, attributable to the proportion of fixed costs in total costs.

Fixed Expenses

Costs that remain constant in total over a specified period, regardless of changes in the level of activity or volume of output.

Unit Variable Cost

The variable cost incurred to produce one unit of a product, such as materials or labor.

Net Operating Income

The profitability of a company's core business operations, calculated as gross profit minus operating expenses, excluding interest and taxes.