If Markets Are Truly Efficient and in Equilibrium

question 52

Multiple Choice

If markets are truly efficient and in equilibrium

• A)all securities would lie on the SML.
• B)any security that plots below the SML would be considered undervalued.
• C)any security that lies above the SML would be considered overvalued.
• D)no security would lie on the SML..

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Definitions:

Total Debt

The sum of all liabilities, both current and long-term, that a company owes to external parties.

Net Worth

The total assets minus total liabilities of an individual or company, indicating financial health and stability.

Operating Income

Earnings before interest and taxes (EBIT), representing the profit a company makes after paying for variable costs of production but before paying interest or tax.

Depreciation Expenses

Depreciation expenses refer to the systematic allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value of the asset over time.