Refer to the Following Figure When Answering the Next Two

question 1

Multiple Choice

Refer to the following figure when answering the next two questions.
Figure 17.2: Dow Jones Industrial Average: 2000-2012
(Source: Federal Reserve Economic Data, St. Louis Federal Reserve)
-Your uncle asks you to explain stock prices based on the financial capital arbitrage equation. He shows you the graph shown in Figure 17.2. He asks you to explain the cause in the rise of stock prices for the years 2002-2006. What do you tell him?

---

Definitions:

Artificially High Amounts

Figures or values that have been inflated through accounting practices or activities that do not reflect the true economic value or performance.

Consolidated Financial Statements

Financial statements that aggregate the financial information of a parent company and its subsidiaries, presenting it as if the group were a single entity.

Gross Profit

The financial gain obtained after subtracting the cost of goods sold from the total revenue generated from sales.

Voting Stock

Shares that give the shareholder the right to vote on company matters, such as electing directors or approving corporate policies.