Which of the Following Real-World Scenarios Best Exemplifies Information Asymmetry

question 58

Multiple Choice

Which of the following real-world scenarios best exemplifies information asymmetry in a public stock company?

• A) Based on a tip-off by a Goldman Sachs employee, the Galleon Group was able to sell its holdings in Goldman Sachs' stocks prior to the announcement.
• B) GE knew that it could create a profitable venture out of producing green products, so it rolled out the ecomagination strategy.
• C) Mark Hurd, CEO of HP, was unaware of the sexual harassment allegations, and the board's demand for him to resign caught him by surprise.
• D) Goldman Sachs was party to the Abacus deal despite knowing its shortcomings.

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Definitions:

Withholding Allowance

A portion of an employee's salary that is not included in their taxable income, used to account for personal exemptions and dependents, essentially reducing the amount of income tax withheld from their paycheck.

Federal Income Tax

The tax imposed by the U.S. government on the income generated by businesses and individuals within its jurisdiction.

Gross Earnings

The total amount of money earned by an individual or company before any deductions or taxes are applied.

Medicare Withholding

The portion of an employee's paycheck that is deducted to contribute to the Medicare program, which provides health insurance to individuals who are over 65 or meet other specific criteria.