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Basic Question 9 of 13
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
User Contributed Comments 11
| 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" |
| Fraser1997 | If NPV were positive, investors would buy, increasing demand and therefore increasing the price such that the NPV would then decrease to zero. (where the present value of all the assets future cash flows are equal to the price you pay for the asset and hence a NET present value of zero) |
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Learning Outcome Statements
describe market efficiency and related concepts, including their importance to investment practitioners
contrast market value and intrinsic value
explain factors that affect a market's efficiency
CFA® 2024 Level I Curriculum, Volume 3, Module 3.