Efficient Market

what would investors do if the: -asset was underpriced? -asset was overpriced?

-buy, pushing up the price -sell, pushing down the price

conditions of: -rate of return -present value

-expected rate of return= market interest rate -asset price= pv of current and expected future payments

what must expectations take into account -examples -should the asset price reflect this?

all readily information: newspapers, business financial data, government stats, internet information -yes

what is the alternative view state that the asset market is not efficient? -in this case does opportunities for economic profit exist?

assets are misplaced- over/ under -yes

in an efficient market when does the present value and rate of return conditions hold?

at every moment

what is the profit in the efficient market based on?

excess of opportunity cost

in an asset market why is more at stake? -what is there more incentive to do?

gain/ lose thousands of dollars -seek out and take advantage of mispricing- a lot of competition

when is the asset considered efficient

if the asset is priced correctly according to the rate of return and present value conditions

according to the present value condition when would there be opportunities of economic profit?

if the asset price were sometimes greater/ less than the present value of the current and expected future payments

an asset market is efficient if...

it is priced correctly according to economic theory

what does the competition among investors do in the market -what does it do to the asset price

makes the market efficient - makes the asset correctly priced

in an efficient market is there an opportunity for an economic profit?

no

in an efficient market what must the expectations be?

rational

asset market equilibrium is

the rate of return= the present value

according to the rate of return condition when would there be opportunities of economic profit?

when the expected rate of return were above/ below the market interest rate