What Is the Information Content Effect

question 88

Multiple Choice

What is the information content effect?

• A)any type of new information that causes a firm to cease paying dividends
• B)any news announcement that was anticipated and thus produces no reaction from investors
• C)the primary contributing data that helps directors determine the amount of a particular dividend payment
• D)any type of reaction from a shareholder in response to a news announcement related to the stock issuer
• E)the financial market's reaction to a change in the amount of a firm's dividend

---

Definitions:

Intrinsic Value

An underlying or fundamental value. In securities analysis, the price of a security (usually a stock) derived from extensive analysis of the issuing company and its industry. In financial options, the difference between the market price of the underlying stock and the price at which an option on that stock can be exercised (the strike price) if that difference is positive, zero if it is not.

Stock Dividend

A payment made by a corporation to its shareholders in the form of additional shares, rather than cash.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions paid to shareholders, which are reinvested into the business.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition.