Answered: The __________, often used in financial…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter31: Capital Markets

Section: Chapter Questions

Problem 8E

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The __________, often used in financial economics, is a method of valuing a company's stock by using predicted dividends and discounting them back to present value. The idea is that the value of a stock is the present value of all future dividends it is expected to provide.

A) Dividend Discount Model
B) Capital Asset Pricing Model
C) Efficient Market Hypothesis
D) Arbitrage Pricing Theory

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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