Which of the following statements is TRUE of rational expectations?
A) Rational expectations forecasts are always correct.
B) For a trader with rational expectations, the expectation of an asset's price equals the optimal price forecast.
C) If traders have rational expectations, any announcement by a company will have an effect on its stock price, even if the market was already aware of the facts being announced.
D) If a trader really has rational expectations, he or she will always earn a greater than normal return on his or her financial portfolio.
Correct Answer:
Verified
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