Which of the following statements is most correct?
A) If a stock's beta increased but its growth rate remained the same, then the new equilibrium price of the stock will be higher (assuming dividends continue to grow at the constant growth rate).
B) Market efficiency says that the actual realized returns on all stocks will be equal to the expected rates of return.
C) An implication of the semistrong form of the efficient markets hypothesis is that you cannot consistently benefit from trading on information reported in The Wall Street Journal.
D) Statements a and b are correct.
E) All of the statements above are correct.

Question

Quizplus · Accepted Answer

The semistrong form of the efficient markets hypothesis states that all publicly available information is already reflected in stock prices, so one cannot consistently benefit from trading on such information. Statements A and B are incorrect. An increase in beta may result in a higher required rate of return, which could lead to a lower equilibrium stock price, depending on the size of the effect. Market efficiency suggests that stock returns will follow the market's expectations on average, but actual returns may deviate from expected returns due to market and company-specific factors.

Which of the Following Statements Is Most Correct