Chapter 10 Market Efficiency Flashcards Preview

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Flashcards in Chapter 10 Market Efficiency Deck (8)
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1

How does understanding security valuation help managers?

provides guidelines about how to manage the business on behalf of shareholders

2

what does the discount rate represent?

shareholder's required rate of return

3

If market prices reflect the actions of managers then managers must learn what?

what actions they should take in order to fulfill their legal and managerial responsibilities to shareholders

4

What are the elements of market Efficiency

1. Operational Efficiency
2. Allocational Efficiency
3. Informational Efficiency

5

what is meant by Operational Efficiency

transaction costs are low
- thereby, enhancing trading of securities

6

what is meant by allocational efficiency

there are enough securities to efficiently allocate risk

7

what is meant by informational efficiency

market prices fairly and quickly reflect all available information about the firm and managers' actions

8

the closer the link between manager's actions and the firm, the more ___________________ efficient the capital market

informationally