Question

In an efficient capital market, all security investments will have a(n) ____.

a. NPV of zero

b. positive NPV

c. required rate of return that exceeds the cost of capital

d. required rate of return that is zero

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Capital markets are said to be efficient. This means _____.

a. accurate stock quotes are quickly available to all investors

b. security prices quickly reflect all economically relevant information

c. they process stock trades accurately and quickly

d. the market provides quick access to a firm's financial statements

Answer 1

In an efficient capital market, all security investments will have an NPV of zero.

If the transactions take place at the market price, then the investor is compensated for the risk measured by the required rate of return and there is no additional return possible.

Capital markets are said to be efficient. This means security prices quickly reflect all economically relevant information.

And, it is not possible to make abnormal returns.

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