An Efficient Market Is a Market

question 50

Multiple Choice

An efficient market is a market

• A) in which everyone always gets what they want.
• B) in which profit opportunities are eliminated almost instantaneously.
• C) in which profits are always very high and persistent.
• D) in which opportunity costs are zero.

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Definitions:

Plowback

The reinvestment of earnings by a company back into its business, often for expansion or development; also known as retained earnings.

PEG Ratio

A stock's price-to-earnings ratio divided by the growth rate of its earnings, used to determine the relative trade-off between the price of a stock, the earnings generated per share, and the company's expected growth.

ROE

Return on Equity, a measure of financial performance calculated by dividing net income by shareholder equity, indicating how effectively management is using a company’s assets to create profits.

Earnings Retention Ratio

The earnings retention ratio, also known as the plowback ratio, measures the percentage of net income that is retained in the company rather than being paid out as dividends.