If the Markets Are Semistrong Efficient, and a Firm Is

question 38

Multiple Choice

If the markets are semistrong efficient, and a firm is known to have been having financial difficulties for the last six months, what effect would you expect an announcement by the firm
That it will cut dividends have on the day that the announcement is made, all else equal?

• A)a significant decrease in price since investors will not be getting as much in cash payments
• B)little to no effect on the price since the cut has probably been anticipated by the markets
• C)a significant increase in the price of a competitor firm that has not had to cut its dividends
• D)a moderate increase in price since investors will consider this a step in the right direction

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Definitions:

Pension Expense

The total cost to a company for the retirement benefits earned by employees in a given period.

Deferred Compensation

A portion of an employee's income that is deferred to a later date, typically to take advantage of lower tax rates or to fund retirement plans.

Pension Expense

The cost recognized by an employer for providing retirement benefits to employees during a given period.