Why Is Insider Trading Problematic

question 39

Multiple Choice

Why is insider trading problematic?

• A)If insiders trade on their information,they cause unnecessary share price fluctuations that drive away outside investors.
• B)If insiders trade on their information,the firm is automatically fined and there will be a net loss in firm value.
• C)If insiders trade on their information,outside investors will benefit from the increase in the share price and thus there is a free rider problem.
• D)If insiders trade on their information,it increases the conflicts between shareholders and managers.
• E)If insiders trade on their information,their profits come at the expense of outside investors,making outside investors less willing to invest in corporations.

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Definitions:

Average Balance

Average balance is a financial term referring to the sum of all balances during a certain period divided by the number of days in that period, often used in banking to assess fees or determine interest.

Standard Deviation

An evaluation of how spread out or dispersed a collection of data points is.

Normally Distributed

A data distribution pattern that follows the normal (bell curve) distribution.

Average Starting Salary

The mean initial compensation given to employees in a specific job or industry, often used as a benchmark for job seekers.