CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

In an efficient market:
A. Publicly held companies should diversify their operations because investors benefit from diversification
B. Investors do not care whether or not companies diversify their operations
C. none of them is correct.
Explanation: In an efficient market it does not matter that publicly held companies diversify their operations or not. Answer B is incorrect as they can diversify: it does not make any difference.

User Contributed Comments 5

User Comment
lvleow not true - in order to diversify, publicly listed firms may have to pay a control premium to takeover other businesses. Therefore, publicly listed companies should not diversify, because investors can diversify for much cheaper.
snider notice the 'efficient market', there's no control premium to pay to take over other businesses.
sonict74 It locks the investor in to capital allocation that he may not want. In reality, even in the efficient market, there maybe some discount due to this fact.
mtcfa If an investor wants to diversify , be can do so by investing across companies and assets with different risk levels. Therefore, investors don't care whether one particular company diversifies across product lines.
wroger So efficient market = Perfect market?
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