Question

Which of the following is an example of inside information? Forbes magazine adjusts its estimate of the net worth of a blood-testing company after the company is accused of endangering customer health. The Wall Street Journal reports on new product development by Apple Computer A lawyer representing the CEO of a company overhears a confidential meeting in which it's disclosed that the CEO is going to be indicted for accounting fraud. A broker watches a news report on CNN and uses this information to suggest a stock purchase to a client. Those who trade stocks based on inside information usually earn very high rates of return. True or False: This fact violates the efficient markets hypothesis because the efficient markets hypothesis argues that it is impossible to earn above market returns. True False

Answer 1

1. Option 3. A lawyer representing the CEO of a company overhears a confidential meeting in which it is disclosed that the CEO is going to be indicted for accounting fraud.

Explanation: An inside information is a confidential information about a company which is not available publicly.

2. True

Explanation: The efficient market hypothesis argues that the market assimilates all information and stock prices reflect all available information; therefore, it is impossible to consistently beat the market.