- CFA Exams
- CFA Exam: Level I 2021
- Study Session 12. Equity Investments (1)
- Reading 38. Market Efficiency
- Subject 1. The Concept of Market Efficiency
CFA Practice Question
If the capital markets are efficient, then the sale or purchase of any security at the prevailing market price is ______.
B. generally a zero NPV transaction
C. always a negative NPV transaction
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" |