If capital markets are efficient, then the sale or purchase of any security at the prevailing market price is generally
A)a positive-NPV transaction.
B)a zero-NPV transaction.
C)a negative-NPV transaction.
D)No general trend exists for such transactions.

Question

Quizplus · Accepted Answer

If capital markets are efficient, the prevailing market price should reflect all available information about the security. Therefore, any transaction made at the prevailing market price should result in a zero net present value (NPV) because the market price already captures all available information and expected cash flows. A positive NPV transaction would imply that the investor is obtaining a security for less than its intrinsic value, which would contradict the idea of market efficiency. Similarly, a negative NPV transaction would imply that the investor is overpaying for a security, which would also contradict market efficiency. Finally, there is a general trend for such transactions, which is the idea that the market price should reflect all available information, resulting in zero NPV transaction at that price.

If Capital Markets Are Efficient, Then the Sale or Purchase