An efficient capital market is one in which: A. brokerage commissions are zero.

Question

An efficient capital market is one in which:
A. brokerage commissions are zero.
B. taxes are irrelevant.
C. securities always offer a positive rate of return to investors.
D. security prices are guaranteed by the U.S. Securities and Exchange Commission to be fair.
E. security prices reflect available information.

In an efficient market when a firm makes an announcement of a new product or product
enhancement with superior technology providing positive NPV, the price of the stock will:
A. rise gradually over the next few days.
B. decline gradually over the next few days.
C. rise on the same day to the new price.
D. stay at the same price, with no net effect.
E. drop on the same day to the new price.
A. reduce costs or increase subsidies.
B. increase the product prices.
C. create a new security.
D. Both A and B.
E. Both A and C.

Remitting cash flows is a term used to describe:
A. cash flows earned in a foreign country.
B. moving cash flows from the foreign subsidiary to the parent firm.
C. forecasting the value of foreign currency one-year hence.
D. forecasting the value of U.S. currency one-year hence.
E. None of the above.

Explanation / Answer

1.E. Efficient markets value assets based on all available information. 2.C. An efficient market would immediately accurately value stock prices. 3.B. That's just a definition, I have no explanation.

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