Which of the Following Findings Would Support the Naive-Investor Hypothesis

question 52

Multiple Choice

Which of the following findings would support the naive-investor hypothesis?

• A)A finding that security prices respond to income levels that differ solely because of alternative accounting methods with no cash flow consequences.
• B)A finding that security prices do not respond to artificial book-income differences.
• C)A finding that security prices do not respond to the adoption of LIFO for accounting for inventories and cost of goods sold.
• D)A finding that security prices do not respond to a change in reported accounting earnings from the prior year.

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Definitions:

Accrued Interest

Interest that has accumulated over a period but has not yet been paid or received.

Note Payable

A financial obligation represented by a written promise to pay a specified amount of money, plus interest, by a certain date or on demand.

Interest Expense

The cost incurred by an entity for borrowed funds, considered a non-operating expense on the income statement.

Commercial Bank

A financial institution that offers a broad range of deposit accounts, including business loans, retail banking, and other financial services.