When the Stock Price Follows a Random Walk, the Price

Multiple Choice

When the stock price follows a random walk, the price today is said to be equal to the prior period price plus the expected return for the period with any remaining difference to the actual return due to:

A) a predictable amount based on the past prices.
B) a component based on new information unrelated to past prices.
C) the security's risk.
D) the risk free rate.
E) None of the above.