Final answer:
If markets are not reasonably efficient, estimates of expected returns based on security prices will not be reliable because market prices may not reflect all available information accurately.
Step-by-step explanation:
If markets are not reasonably efficient, then estimates of expected returns that were based on security prices will not be reliable. Market efficiency is critical because it underpins the reliability of market prices as indicators of value; it affects the necessary discount rate for analyzing project cash flows. When markets are not efficient, it suggests that prices may not fully reflect all available information. In such cases, stock prices that are supposed to be based on expectations about the future might not accurately represent the true potential of the companies, leading to unreliable estimates of expected returns. This can also misguide the investment strategies since expectations won't align with actual outcomes.