If capital markets are efficient, then the purchase or sale of any security at the prevailing market price is never a positive-NPV transaction.

Question

Quizplus · Accepted Answer

If capital markets are efficient, then the prevailing market price of a security will already reflect all available information and be based on the expected future cash flows of the security. Therefore, purchasing or selling a security at the prevailing market price would not result in a positive net present value (NPV) transaction, as the price would be fair and reflect the expected return on the investment. This is known as the efficient market hypothesis.

If Capital Markets Are Efficient, Then the Purchase or Sale