If the financial markets are efficient,then investors should expect their investments in those markets to:
A)earn extraordinary returns on a routine basis.
B)generally have zero net present values.
C)generally have positive net present values.
D)produce arbitrage opportunities on a routine basis.
E)produce negative returns on a routine basis.

Question

Quizplus · Accepted Answer

The concept of market efficiency suggests that all available information and expectations are reflected in the current market prices of securities. Thus, investors should expect their investments to have zero net present values, in the sense that the expected returns should be proportional to the risk involved in the investment. This means that investments may generate positive or negative returns, but these returns should be consistent with the overall level of risk in the market. Extraordinary returns or arbitrage opportunities, which imply that securities are mispriced, would suggest that the market is not efficient.

If the Financial Markets Are Efficient,then Investors Should Expect Their