Asked by Marianne Szabelski on May 12, 2024
Verified
If securities markets are rational and efficient in the sense that they fully and correctly impound all available information into a company's stock price,then the price will reflect investors' unbiased expectations about the company's future earnings and cash flows.
Securities Markets
Platforms or systems facilitating the issuance and trading of financial instruments, such as stocks and bonds, providing liquidity and helping in capital formation.
Unbiased Expectations
Unbiased expectations theory suggests that the future interest rates can be estimated by using the current long-term interest rates, assuming they are an unbiased predictor of future rates.
Future Earnings
Projected or anticipated earnings of a company, based on current trends, industry conditions, and other factors.
- Understand how market efficiency and rationality impact share prices with respect to future earnings and cash flows expectations.
Verified Answer
Learning Objectives
- Understand how market efficiency and rationality impact share prices with respect to future earnings and cash flows expectations.
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