If security markets are efficient, then:
A)the net present value of all securities should be positive.
B)the net present value of all securities should be zero.
C)the net present value of all securities should be negative.
D)there are no implications on the net present value of securities.

Question

Quizplus · Accepted Answer

The efficient market hypothesis states that security prices fully reflect all available information at any point in time. Therefore, the net present value of all securities should already be reflected in their market price, resulting in a net present value of zero. If securities had a consistently positive or negative net present value, it would suggest either systematic over- or undervaluation, which would violate the efficiency assumption.

If Security Markets Are Efficient, Then