“When the stock market declines the net worth of companies decreases, causing the problem of asymmetric information to decrease as well.” Is this statement true, false, or uncertain? Explain your answer.
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- “When the stock market declines the net worth of companies decreases, causing the problem of asymmetric information to decrease as well.” Is this statement true, false, or uncertain? Explain your answer.
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- Which of the following are consistent with the efficient market hypothesis? Check all that apply. Changes in stock prices can be accurately predicted by investors. At the market price, the number of people who believe the stock is overvalued exactly equals the number of people who think the stock is undervalued. A positive news release about a company will increase the value and stock price for that firm. Some investors cite the existence of anomalies—observations that do not fit the model—as evidence that stock markets are not efficient. Which of the following are such anomalies? Check all that apply. The best time to sell a stock is late on Wednesday or Friday, whereas the best time to buy a stock is late on Tuesday or Thursday. The movement of stock prices of companies over time is the same as the changes in their earnings. High returns to a stock in one period are associated with even higher returns in a later period. There is a…Which of the following statements is NOT true? A. Stock owners benefit from stock price increases B. Higher stock prices allow companies access to more capital C. Common stocks are not securities D. Stock prices tend to be very volatileAssumes stock markets are both deep (many buyers and sellers) and liquid (easy to buy or sell). As soon as new information becomes available about a company, the supply and/or demand for its stock are not immediately affected. The first and second statements are both false. The first statement is false. The second statement is true. The first and second statements are both true. The first statement is true. The second statement is false.
- According to the critics of stock price maximisation, “A practical problem with stock price as a performance measure is that it depends on a whole array of factors outside the company’s control. One can never be certain whether an increase in stock price reflects improving company performance or other environmental factors” (Higgins, Koski & Mitton, 2022, p. 60) In not more than 200 words, discuss the above quotation using GameStop Debacle as a case study.Explain in full detail why the following statement is false: "Financial managers should not focus on the present stock value of the company. Instead, they should focus on the profitability of the company. Doing so will result in increasing the value of the stock.Which of the following sources of market inefficiency would be most easily exploited?a. A stock price drops suddenly due to a large sale by an institution.b. A stock is overpriced because traders are restricted from short sales.c. Stocks are overvalued because investors are exuberant over increased productivity in the economy.
- What are some of the risks an investor would face when investing in a stock? In addition to the business risk coming from the type of business environment that your company operates in, what additional risk would be of concern to an investor? The company might be mismanaged and do poorly or go out of business. The company's stock market return might be wildly unpredictable as the operating performance might be unstable. The company's competitors might do a better job and take market share away? The list goes on and on... What risks would you face if you bought 100 shares of Tesla?Which of the following is inconsistent or unrelated with the efficient market hypothesis? a. Changes in stock prices are impossible to predict from public information. b. Asset prices reflect all publicly available information about the value of the assets. c. Stock prices follow a random walk, so stock price movements should be impossible to predict. d. The stock market moves based on the changing animal spirits of investors. e. The stock market is informationally efficient. f. It is impossible to systematically beat the marketExplain why the following statement is wrong: “The stock price is equal to the value of equity, divided by shares outstanding. Therefore, companies should avoid issuing equity because the number of shares outstanding goes up and thus the stock price would decrease."
- Companies often are under pressure to meet or beat Wall Street earnings projections in order to increase stock prices and also to increase the value of stock options. Some resort to earnings management practices to artificially create desired results. Required: Is earnings management always intended to produce higher income? Explain.Assume that a company announces an unexpectedly large cash dividend to its shareholders. In an efficient market without information leakage, one might expect:a. An abnormal price change at the announcement.b. An abnormal price increase before the announcement.c. An abnormal price decrease after the announcement.d. No abnormal price change before or after the announcement.How does the market react to unexpected dividend changes? What does this tell us about dividendpolicy? How is it possible that dividends are so important, but at the same time, dividend policy isirrelevant?
