In an Efficient Capital Market

question 4

Multiple Choice

In an efficient capital market,

• A) security prices fully reflect the knowledge and expectations of all investors at a particular point in time.
• B) investors and financial managers have no reason to believe the securities are not priced at or near their true value.
• C) prices of securities adjust as new information becomes available to the market.
• D) All of the above are true.

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Definitions:

Null Hypothesis

The hypothesis in statistical analysis that posits no significant difference or relationship exists among groups or variables being studied.

P-Value

The chance of receiving test results that are as extreme or exceed the extremity of those actually observed, with the null hypothesis assumed to be true.

Significance Level

The likelihood of mistakenly dismissing the null hypothesis, typically represented by alpha, when in truth it holds.

Null Hypothesis

A statement or hypothesis that assumes no statistical significance or effect exists in a set of observations or experiment.