Assume That There Is Perfect Arbitrage in the Stock Market

Multiple Choice

Assume that there is perfect arbitrage in the stock market. Given this information, economists believe that:

A) the rate of return on stocks will be equal to the rate of return on bonds.
B) most stocks diverge widely from their fundamental value.
C) movements in stock prices are largely unpredictable.
D) stocks will generally earn a lower rate of return than bonds.
E) movements in stock prices can be easily predicted.