CFA Practice Question

There are 275 practice questions for this study session.

CFA Practice Question

If the capital markets are efficient, then the sale or purchase of any security at the prevailing market price is ______.

A. always a positive NPV transaction
B. generally a zero NPV transaction
C. always a negative NPV transaction
Correct Answer: B

User Contributed Comments 10

User Comment
dugi why?
01121975 Because the stock is fairly valued: no risk-adjusted excess returns. So, you get exactly what you pay.
accounting 01121975 is correct
kutta2102 I think it depends on what the NPV is composed of. If the stock price moves up next year based on the company's investment in projects with > 0 NPV, the capital gain could turn the transaction into positive NPV if the gain was more than the discount rate appropriate.
adamzell but then transaction costs would make it a negative NPV transaction.
malemu Surely the npv should be positive.
johntan1979 No arbitrage
jonan203 zero NPV = market rate of return = efficient market

positive NPV = greater than market rate of return = inefficient market

negative NPV = less than market rate of return = you suck at investing...j/p
davcer the mkt value is similar to intrinsic value, so npv should be similar to 0
obuyajosh Attention to the wording "always"
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