Suppose That Firms with Unexpectedly High Earnings Earn Abnormally High

question 22

Multiple Choice

Suppose that firms with unexpectedly high earnings earn abnormally high returns for several months after the announcement. This would be evidence of:

• A) efficient markets in the weak form.
• B) inefficient markets in the weak form.
• C) efficient markets in the semistrong form.
• D) inefficient markets in the semistrong form.
• E) inefficient markets in the strong form.

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Definitions:

Bad Debts Expense

Bad debts expense represents the amount of receivables a company estimates it will not collect due to customer defaults.

Trade Receivables

Amounts owed to a business by its customers for goods or services delivered on credit.

Factoring

A financial transaction where a business sells its accounts receivable to a third party at a discount, in exchange for immediate cash.

Liquidity

The ease with which an asset can be converted into cash without affecting its market price.