Which of the Following Situations Would Be Considered Insider Trading

question 301

Multiple Choice

Which of the following situations would be considered insider trading?

• A) You read online that Marshall Manufacturing has a new CEO, who plans to bring in his own team. You decide to call your broker and buy shares of Marshall Manufacturing.
• B) Your Uncle Tim works for Marshall Manufacturing and sends you a news release put out by the company that talks about the acquisition of a Korean company. You believe this will significantly boost Marshall Manufacturing revenues so you buy 200 shares through an online service.
• C) You buy 500 shares of Marshall Manufacturing because you just heard from the CEO's administrative assistant that the CEO was just fired. You figure that this emotional news has got to help the stock price.
• D) Your stockbroker recommends that you diversify your portfolio with a few shares of Marshall Manufacturing because its request through the FTC and several international trade commissions to finalize the purchase of two oil companies was successful. You act on this information.

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Definitions:

Debt/Equity Ratio

A ratio demonstrating the comparative levels of shareholders' equity and borrowed funds deployed to finance company assets.

Residual Dividend Policy

A strategy where dividends paid to shareholders are based on earnings left over after all operational and project expenses are covered.

After-Tax Earnings

The amount of net income remaining after all taxes have been deducted, reflecting the company's profitability after fulfilling tax obligations.

Stock Split

A corporate action that increases the number of shares outstanding, reducing the price per share without changing the company's market capitalization.