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DedPeter [7]
3 years ago
9

The concept of market efficiency underpins almost all financial theory and decision models. When financial markets are efficient

, the price of a security, such as a share of a particular corporation's common stock - should be _________ (equal to or more than) the present value estimate of the firm's expected cash flows discounted by its appropriate rate of return.
Business
1 answer:
OverLord2011 [107]3 years ago
6 0

Answer:

Equal to

Explanation:

Financial theory assumes that financial markets are efficient and that there is no information failure in conducting financial transactions. However, this is an assumption and there could, in some instances, be asymmetric information in the form of adverse selection and moral hazards. For example, if managers of a corporation know how well or how poorly their business is doing than stockholders (as organizational performance determines the price of a security), then there would be an information failure or informational inefficency. Also, a potential investor who cannot distinguish between a firm whose security has a high potential for profit and low risks compared to that with a low potential for profit and high risk will be willing to pay a price that lies between the value of stock from bad firms and the value of stock from good firms. This will not augur well for good firms as their stock is underpriced and they will be reluctant to sell.

When the financial market is efficient, investors of stock would be able to earn supernormal returns on their investments. It is therefore neccessary that the price of a corporation's common stock should be equal to the present value estimate of the firm's expected cash flows discounted by it appropriate rate of return.

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LenaWriter [7]

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8 0
1 year ago
Sunland Company manufactures and sells high-priced motorcycles. The Engine Division produces and sells engines to other motorcyc
Andreyy89

Important dsiclamer: there was a type in the question you enter 26,000 while in the textbook is for 20,000

Answer:

a. Decrease $1,200,000

Explanation:

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cost        1050

gross     2100

fixed      (2100)

operating     0

external engine purchase (3000)

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8 0
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When working with a client who has COPD (stable and medically cleared for exercise) and likes swimming, you should recommend the
ANEK [815]

Answer:

You should recommend that they swim:

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LenaWriter [7]

Answer:

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Explanation:

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