In efficient markets, investments have an expected NPV equal to zero.

Question

Quizplus · Accepted Answer

In efficient markets, all available information is already reflected in asset prices, meaning that on average, investments will only earn a return that is commensurate with their risk, resulting in an expected Net Present Value (NPV) of zero. This is because the market prices assets in such a way that the potential for above-average returns (positive NPV) is offset by the corresponding level of risk.

In Efficient Markets, Investments Have an Expected NPV Equal to Zero