An efficient capital market is one in which:
A) brokerage commissions are zero.
B) taxes are irrelevant.
C) securities always offer a positive rate of return to investors.
D) security prices are guaranteed by the U.S. Securities and Exchange Commission to be fair.
E) security prices reflect available information.

Question

Quizplus · Accepted Answer

An efficient capital market reflects available information, meaning that securities are priced accurately based on all relevant information. This allows investors to make informed decisions and ensures that capital is allocated efficiently. While zero brokerage commissions and irrelevant taxes may contribute to a more favorable investment environment, they are not necessary for an efficient capital market. The guarantee of fair security prices by the SEC is also not feasible or realistic. Therefore, the best choice is E.

An Efficient Capital Market Is One in Which