Good Firm is highly profitable and will grow rapidly in the future. Bad Firm faces the same risks but barely makes a profit and will not grow at all. In an efficient market, _.
A.it is better to buy shares in Bad Firm
B.both stocks are equally good investments
C.it is better to buy shares in Good Firm
D.both stock prices react equally to the same information
2.If markets are efficient, _.
A.security selection is useful, but asset allocation is not
B.both asset allocation and security selection are useless
C.both asset allocation and security selection are useful
D.asset allocation is useful, but security selection is not

Question

Ciierraxbandss3279 Ciierraxbandss3279

24-11-2022
Business

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Good Firm is highly profitable and will grow rapidly in the future. Bad Firm faces the same risks but barely makes a profit and will not grow at all. In an efficient market, _.
A.it is better to buy shares in Bad Firm
B.both stocks are equally good investments
C.it is better to buy shares in Good Firm
D.both stock prices react equally to the same information
2.If markets are efficient, _.
A.security selection is useful, but asset allocation is not
B.both asset allocation and security selection are useless
C.both asset allocation and security selection are useful
D.asset allocation is useful, but security selection is not

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HafsaM HafsaM · Answer 1 · 2022-12-07T06:11:03+01:00

Good Firm is highly profitable and will grow rapidly in the future. Bad Firm faces the same risks but barely makes a profit and will not grow at all. In an efficient market, both stocks are equally good investments.

Pricing reflects all available information in a market that functions well. Let's suppose, for the sake of simplicity, that the two companies have equal shares outstanding. Then, both companies will have the same risk-adjusted anticipated return since the stock price of Good Firm will be significantly greater than that of Bad Firm.

If markets are efficient, both asset allocation and security selection are useful.

Asset allocation and security selection are influenced by the effectiveness of market operations because asset allocation creates a framework for an investor's portfolio that allows them to assess the performance of an investment. This framework helps investors make successful investments.

Hence the correct option is B and C

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