An efficient market is defined as one where all investments in that market are ____ investments.

Question

Quizplus · Accepted Answer

In an efficient market, all investments are priced perfectly according to their risk and return, meaning any potential profits from undervalued investments are immediately corrected by the market. Thus, no investment offers a positive net present value (NPV) opportunity, as prices reflect all available information. This leads to investments having a zero net present value, indicating that they are fairly priced and investors cannot expect to earn an abnormal return above the market rate.

An Efficient Market Is Defined as One Where All Investments