Asked by Isaiah Drayton on Jul 12, 2024
Verified
Active trading in markets and competition among securities analysts helps ensure that:
I. Security prices approach informational efficiency.
II. Riskier securities are priced to offer higher potential returns.
III. Investors are unlikely to be able to consistently find under- or overvalued securities.
A) I only
B) I and II only
C) II and III only
D) I, II, and III
Informational Efficiency
A characteristic of financial markets where all relevant information is quickly and accurately reflected in security prices, allowing for fair and efficient trading.
Active Trading
The buying and selling of securities with the intent of profiting from short-term price movements.
Securities Analysts
Securities Analysts are professionals who evaluate and report on the potential of investments, including stocks, bonds, and other securities.
- Comprehend the relationship between risk and return in financial markets.
Verified Answer
SK
Sophie KitwaJul 14, 2024
Final Answer :
D
Explanation :
Active trading in markets helps ensure that security prices approach informational efficiency by incorporating new information quickly, and competition among securities analysts helps ensure that riskier securities are priced to offer higher potential returns. Additionally, the combination of active trading and competition among securities analysts makes it unlikely that investors will consistently find under- or overvalued securities. Therefore, all three statements are true.
Learning Objectives
- Comprehend the relationship between risk and return in financial markets.