- CFA Exams
- CFA Level I Exam
- Study Session 12. Equity Investments (1)
- Reading 38. Market Efficiency
- Subject 1. The Concept of Market Efficiency
CFA Practice Question
In an inefficient market, if an asset's intrinsic value is estimated to be $10 while the market price is $12, the asset appears to be ______.
A. overvalued
B. undervalued
C. uncertain
Explanation: This is because the market is inefficient and the intrinsic value is not a good estimate of the market value of the asset.
User Contributed Comments 9
| User | Comment |
|---|---|
| gjk2103 | so...if we had the assumption of an efficient market instead of an ineffecient market, would the intrinsic value indicate that the stock is overvalued? |
| bidisha | Yup |
| gill15 | Tricked me..nice Q... |
| davcer | inefficient. in an efficient mkt if intrinsic<mkt then the asset is overvalued |
| tichas | Nice question |
| praj24 | Well....pissed all over my parade |
| CJPerugini | When you read the question too fast .... |
| Noblebao | key word is inefficient market |
| Patdotcom | In an efficient market, those values should be similar. So I understood that it was the inefficience of the market that created the possibility of overstimation or understimation.. |