What is an efficient market?

• A) A market where the price of an asset is always higher than its intrinsic value

• B) A market where the price of an asset is equivalent to its intrinsic value

• C) A market where the price of an asset is always lower than its intrinsic value

• D) A market where the price of an asset is unpredictable

Answer explanation

A market where the price of an asset is equivalent to its intrinsic value

What is intrinsic value?

• A) The subjective value of an asset

• B) The market price of an asset

• C) The true, objective value of an asset

• D) The future value of an asset

Answer explanation

The true, objective value of an asset

Is the price of an asset always the same as its intrinsic value?

• A) Yes, always

• B) No, never

• C) Sometimes

• D) Only in efficient markets

Answer explanation

The price of an asset is not always the same as its intrinsic value, as various factors can influence the price. Therefore, the correct answer is sometimes.

Why might a house priced at $150,000 have an intrinsic value of $0?

• A) Because it is built on top of nuclear waste

• B) Because it is in a high-crime area

• C) Because it is an old house

• D) Because it is in a rural area

Answer explanation

Because it is built on top of nuclear waste

What can cause the perception of an asset's value to change even if the price does not change?

• A) New information

• B) Market trends

• C) Economic policies

• D) Inflation

Answer explanation

New information can cause the perception of an asset's value to change even if the price does not change.

What is the role of information in making decisions about the value of an asset?

• It is irrelevant in decision-making.

• It helps in making correct, objective decisions.

• It complicates the decision-making process.

• It only affects short-term decisions.

Answer explanation

Information helps in making correct, objective decisions by providing relevant data and insights about the value of an asset.

In an efficient market, how is every asset priced?

• Randomly based on market trends.

• Based on historical data only.

• Correctly based on all available information.

• Based on predictions and speculations.

Answer explanation

In an efficient market, every asset is priced correctly based on all available information, not randomly or based on predictions.

How can new information affect an asset's value?

• It has no effect on the asset's value.

• It can change the perception of the asset's value and cause the price to adjust accordingly.

• It only affects the asset's value in the long term.

• It makes the asset's value unpredictable.

Answer explanation

New information can change the perception of an asset's value, leading to price adjustments.

Which of the following is a sign of market efficiency?

• Prices of assets quickly and accurately reflect new information

• Prices of assets are always stable

• It is easy to outperform the market through trading strategies

• The market has a small number of buyers and sellers

Answer explanation

Prices of assets quickly and accurately reflect new information is a sign of market efficiency.

What makes it difficult to consistently outperform the market through trading strategies?

• Market inefficiency

• Market efficiency

• Lack of information

• High transaction costs

Answer explanation

Market efficiency makes it difficult to consistently outperform the market through trading strategies as it implies that all available information is already reflected in stock prices.