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Chapter 7 Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

Chapter Objectives

By the end of this chapter, students should be able to:

  1. Explain when expectations are rational and when they are irrational.
  2. Explain how corporate equities (stocks, shares of a corporation) are valued.
  3. Explain what is meant by the term market efficiency.
  4. Describe the ways in which financial markets are efficient.
  5. Describe the ways in which financial markets are inefficient.