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:

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return.

Interest Rate

Rate at which one can borrow or lend money.

Decline

A decrease in quantity, quality, or strength over a period, often observed in economic indicators, stock prices, or physical capacities.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.