Which of the Following Individuals Is Using Information Outside the Efficient

question 126

Multiple Choice

Which of the following individuals is using information outside the efficient markets hypothesis? Someone who:

• A) has information about the aging U.S. population and expects stock for companies that cater to senior citizens to increase in value.
• B) reads in the newspaper about a merger between two profitable firms and expects the stock prices for these companies to rise.
• C) while auditing a dishonest company realizes that its profit estimates are greatly inflated and immediately sells her stock in the company.
• D) hears a rumor that a top bank may be in trouble, and decides to sell his stock in that company.

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Definitions:

Net Operating Income

The profit generated from a company's everyday operational activities, excluding taxes and interest.

Sales

The total revenue earned from selling goods or services over a specific time period.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, representing shareholders' ownership interest.

Residual Income

The net income that an investment or business generates above the minimum required return, often used in performance evaluation.