Question

Amazon stock price is very high in recent years. It is reported that Amazon CEO Jeff Bezos sells 1 billion dollars of his Amazon stocks every year to fund his new technology company Blue Origin. This means:

I. Amazon stock price should be overvalued in recent years.

II. Market efficiency is important. If Amazon is overvalued, then Jeff Bezos may exploit such overvaluation by selling the Amazon stocks to do other things.

III. Market efficiency is important. If Amazon is fairly valued, then the high price of Amazon is a fair recognition of Bezos’ ability to run technology companies.

I and III

II and III

I and II

I, II, and III

Answer 1

Market efficiency is important because it can be used by various investors to to capitalise between the difference in market price and difference in real stock price which is the intrinsic value so when Jeff Bezos offloaded the shares of Amazon he were exploiting the gap because he were thinking that shares are richly valued and he wanted to gain the price of it.a

First statement is false as there is no substantial rule to decide that Amazon was actually overvalued.

If Amazon was fairly valued then it is is Bezos ability to run technology company at a good valuations.

Correct answer is option (B) II and III