1. An analyst estimates that a security’s intrinsic value is lower than its market value.

The security appears to be:

A. Undervalued.
B. Fairly valued.
C. Overvalued.
2. A market in which assets’ market values are, on average, equal to or nearly equal to intrinsic values is best described as a market that is attractive for:
A. Active investment.
B. Passive investment.
C. Both active and passive investment.
3. Suppose that the future cash flows of an asset are accurately estimated. The asset trades in a market that you believe is highly efficient based on most evidence. But your intrinsic value estimate exceeds market value by a moderate amount. The most likely conclusion is that you have:
A. Overestimated the asset’s risk.
B. Underestimated the asset’s risk.
C. Identified a market inefficiency.