Question

Why is it that buying or selling financial securities in an efficient market is a zero npv investment?

Answer 1

The reason why buying or selling financial securities in an efficient market is a zero NPV investment is because

• the price of a financial security in an efficient market is the present value of the expected future cash flows, and
• Financial securities are priced at their true value and investors cannot make excess profit from the transaction.

The simple definition of NPV is that your income will exactly equal your expenses. As a result, neither financial loss nor gain is possible. You won't be losing anything, and your business can continue operating and perhaps expand into new markets. There are cases where doing nothing has a positive net present value (e.g., strategic market entrance exercises).

When net present value is zero, all cash flows are at a standstill and future growth is not anticipated. In other words, you shouldn't put your money there. Having a negative net present value (NPV) also suggests that your future profits will decrease, assuming the investment has already been made and is being amortised over time. To think that something like this could happen in real life is almost impossible to fathom.

To know more about NPV investment refer to:

brainly.com/question/13083967

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