Someone Who Is Using Information Outside the Efficient Markets Hypothesis

question 1

Multiple Choice

Someone who is using information outside the efficient markets hypothesis:

• A) has information about the aging U.S. population and expects stock for companies that cater to senior citizens to increase in value.
• B) reads in the newspaper about a merger between two profitable firms and expects the stock prices for these companies to rise.
• C) while auditing a dishonest company realizes that its profit estimates are greatly inflated and immediately sells her stock in the company.
• D) hears a rumor that a top bank may be in trouble and decides to sell his stock in that company.

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Definitions:

Compensating Variation

An economic concept referring to the amount of additional income required to keep an individual at the same level of utility after a price change.

Price of Earrings

The cost at which earrings are sold, which may vary based on materials, design, and brand.

Income

The amount of money or assets received over a period of time, typically through work, investments, or business operations.

Compensating Variation

An economic concept representing the monetary amount needed to compensate an individual for a price change or policy effect, keeping utility constant.