- CFA Exams
- 2021 CFA Level I Exam
- Study Session 12. Equity Investments (1)
- Reading 38. Market Efficiency
- Subject 1. The Concept of Market Efficiency

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**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

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**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" |