Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
- Isolde Corporation, a manufacturer of land mines used in civil wars, has operations around the world. Consider the following events:
- Event A: The Company, in conformance with financial media reports, officially announced that it will skip an upcoming dividend payment due to liquidity issues.
- Event B: The Company officially announced the acquisition of a competitor based in Switzerland. The actual acquisition price was much lower than the market expected.
- Event C: The Company released its interim financial statements consistent with the
forecasts in the financial media and other market reports; the quarterly performance was relatively weak.
Which of the following market reactions, if true, will most likely render the market for Isolde's shares informationally efficient?
- The market value of the company shares decreased substantially after Event A.
- The market value of the company shares decreased slightly after Event B.
- The market value of the company shares remained relatively constant after Event C.
- All of the above reactions are consistent with informational efficiency.
- None of the above reactions is consistent with informational efficiency.
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