Question

According to the hypothetical efficient markets, overvalued values and undervalued values must exist.

(a) no, no

(b) no, some

(c) some, not

(d) some, some

Answer 1

As per the Efficient Market Theory, at any given point of time the security price reflects all available price sensitive information. implying that no investor can consistently outperform the market, as every stock is correctly priced on the available information. Making it impossible to either purchase undervalued stocks or sell stocks at inflated price, as the stocks are traded at its fair value

On this basis the answer to question is

option (a) No, No

as the stocks are failry priced , no overvalued or undervalued stocks could be found.