In an efficient capital market, all security investments will have a(n) ____.

Question

Quizplus · Accepted Answer

In an efficient capital market, all security investments will have a NPV of zero. This means that the expected return on the investment will be exactly equal to the required rate of return, taking into account the associated risk. Any security with a positive NPV would be considered undervalued and would be quickly bought up, driving the price up and lowering the expected return. Likewise, any security with a negative NPV would be considered overvalued and would be quickly sold off, driving the price down and increasing the expected return. Therefore, in an efficient capital market, securities will be priced such that their NPV is zero, with the required rate of return equal to the cost of capital.

In an Efficient Capital Market, All Security Investments Will Have