Which of the Following Is the Best Statement of the Efficient

question 43

Multiple Choice

Which of the following is the best statement of the efficient markets hypothesis?

• A) Investors with information that a stock had a positive net present value (NPV) will buy it, while investors with information that a stock had a negative net present value (NPV) will sell it.
• B) Investor's decisions are dependent on complete current information of a firm's cash flows and accurate predictions of future cash flows.
• C) Competition between investors works to make the net present value (NPV) of all trading opportunities zero.
• D) A share's price is the aggregate of the information of many investors.

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Definitions:

Competitive Industry

An industry where numerous firms compete against each other to sell similar products to consumers.

Average Total Cost

The total cost of production (fixed and variable costs) divided by the quantity of output produced.

Marginal Revenue

The augmented income obtained by selling one more unit of a good or service.

Marginal Cost

The increase in total cost that arises from producing one additional unit of output.