1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
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.

You might be interested in
Which of the following is a normative economic statement? The poverty rate hit a new high last year and income distribution also
gizmo_the_mogwai [7]

Answer:

The government needs to revamp the Social Security program to make it sustainable.

Explanation:

A normative economic statement is always a suggestion for the economy, whereas a descriptive economic statement is a statement providing information, as it states the facts and do not provide any suggestion.

Here, in given instance the statement,

Government needs to improve or form the Social Security Program, so that the program is sustainable, is a suggestion and not a fact.

Thus, it is a normative economic statement.

5 0
3 years ago
A company has beginning inventory for the year of $10,500. During the year, the company purchases inventory for $160,000 and end
djverab [1.8K]

Answer:

The correct answer is $147,500.

Explanation:

According to the scenario, the given data are as follows:

Beginning inventory = $10,500

Purchase inventory = $160,000

Ending inventory = $23,000

So, we can calculate the cost of goods sold by using following method:

Cost of goods sold = Beginning inventory + Purchase inventory - Ending Inventory

By putting the value, we get,

Cost of goods sold = $10,500 + $160,000 - $23,000

= $147,500

4 0
3 years ago
Gasoline and bicycles are complements in consumption. Suppose we increase the federal gasoline tax to $1 per gallon. What are th
dalvyx [7]

Answer: A

Explanation:

A complementary good is a product that is used together with another product. Without its complement, such a good will have little value. When there is increase in the price of a particular product, the demand of its complement reduces because consumers may not be able to use the complement on its own.

Complements have negative cross elasticity of demand i.e there is increase in the demand for a product when the price of its complement reduces. If bicycles and gasoline are complements, an increase in tax on gasoline will have a negative effect on the demand for bicycle. Due to the price increase of gasoline, less people will demand for bicycle. The initial change that will occur as a result of this is that as there is a price increase for gasoline, there will be a leftward shift in the demand for bicycle. This implies that less bicycle will be demanded for.

7 0
3 years ago
What is the present value of the following cash-flow stream if the interest rate is 5%? (Do not round intermediate calculations.
ira [324]

Answer:

present value  = $785.21

Explanation:

given data

interest rate r = 5%

Year 1 Cash Flow  C1 = $190

Year 2 Cash Flow  C2 = $390

Year 3 Cash Flow  C3 = $290

time t = 3 year

solution

we get here present value of cash-flow stream that is express as

present value = \frac{C1}{(1+r)} + \frac{C2}{(1+r)^2} + \frac{C3}{(1+r)^3}    ......................1

put here value and we get

present value  = \frac{190}{(1+0.05)} + \frac{390}{(1+0.05)^2} + \frac{290}{(1+0.05)^3}

present value  = $785.21

6 0
3 years ago
Ramon did not have health insurance in 2019, how does that affect his return? A. He must pay a $695 shared responsibility paymen
Sever21 [200]

Answer:

<em><u>The answer is</u></em>: <u>B. It has no effect on his Form 1040. The "Full-year health care coverage or exempt" box is eliminated from Form 1040 because the shared responsibility payment is reduced to zero for tax year 2019.</u>

Explanation:

<u>Health insurance coverage is no longer mandatory at the federal level, as of January 1, 2019,</u> so the shared responsibility payment is reduced to zero for the 2019 fiscal year.

So it has no effect on your 1040 form, because the entire year of health care coverage or the exempt box is removed from the 1040 form.

<em><u>The answer is</u></em>: <u>B. It has no effect on his Form 1040. The "Full-year health care coverage or exempt" box is eliminated from Form 1040 because the shared responsibility payment is reduced to zero for tax year 2019.</u>

4 0
3 years ago
Other questions:
  • Changes in any sector of the general environment ____.
    5·1 answer
  • The price of DVDs​ (D) is ​$20.00 and the price of CDs​ (C) is ​$20.00. Phillip has a budget of ​$100.00 to spend on the two goo
    15·1 answer
  • The Federal Reserve
    12·1 answer
  • You want to have $60,000 in your savings account 12 years from now, and you’re prepared to make equal annual deposits into the a
    7·1 answer
  • On January 1, Applied Technologies Corporation (ATC) issued $550,000 in bonds that mature in 10 years. The bonds have a stated i
    7·1 answer
  • A friend offers you a ticket to a Chicago Cubs baseball game for $40. You know you can sell the ticket to another friend for $50
    9·1 answer
  • The following is the adjusted trial balance for Nadia Company. Nadia Company Adjusted Trial Balance December 31 Account No. Debi
    13·1 answer
  • Lopez Company uses both standards and budgets. For the year, estimated production of Product X is 597,000 units. Total estimated
    13·1 answer
  • Record the following process costing transactions in the general journal:
    8·1 answer
  • Valcarcel Corporation manufactures and sells one product. The following information pertains to the company’s first year of oper
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!