Question

The efficient market hypothesis implies that

Multiple Choice

-all investments should earn the same average rate of return over time.

-any investment should earn a normal return commensurate with the investment’s risk.

-efficient markets will tend to have fixed prices from one day to the next.

-stock prices are only efficient when all investors review their portfolios on a daily basis.

-investors must be disinterested in their investments for the markets to be efficient.

Answer 1

A market is considered as efficient when all stock related information is publicly available to all investor and invest make decision rationally for make investment decision. In efficient market, required rate of return is equal to expected rate of return and market value of stock is equal to book value of stock.

So, The efficient market hypothesis implies that any investment should earn a normal return commensurate with the investment’s risk.

Option (B) is correct answer.