Consider a share with a declining fundamental value that trades for 10 periods. Which of the following phenomena would be most consistent with prices tracking fundamental value?
A) Average market price peaks in period 10.
B) Average market prices peaks before Round 5.
C) Average market price peaks after Round 5.
D) Average market price peaks in Round 1.

Question

Quizplus · Accepted Answer

If the fundamental value of a share is declining, the most consistent scenario with prices tracking fundamental value would be for the average market price to peak as early as possible, which would be in Round 1, before the decline starts to be reflected in the prices.

Consider a Share with a Declining Fundamental Value That Trades