If traders in a market have rational expectations, then A. prices of riskier assets are higher than prices of less risky assets. B. the price of an asset equals its fundamental value. C. past prices of assets do not affect market participants' expectations of future asset prices. D. they make use of less information than they would if they had adaptive expectations.

Question

Business

Raina Barajas

6 July, 09:29

If traders in a market have rational expectations, then A. prices of riskier assets are higher than prices of less risky assets. B. the price of an asset equals its fundamental value. C. past prices of assets do not affect market participants' expectations of future asset prices. D. they make use of less information than they would if they had adaptive expectations.

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Answers (1)

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Elaina Hernandez · Answer 1

B. the price of an asset equals its fundamental value.

Explanation:

If the traders in the market have a rational expectation then the price of the asset is equal to the fundamental values and if a stocks is trading at a price at its fundamental values then the investor will be making a rational expectation.