4. Asymmetric information a) means that investors may be subject to adverse selection b) means that investors may be subject to moral hazard problems c) may hinder the efficient operation of financial markets d) All three statements are correct
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- Subject 3 A. Proponents of the use of Fair Value Accounting (FVA) argue that the use of fairvalue reflects current market conditions. On the contrary, opponents of the FVAargue that under specific circumstances, such as a financial crisis, mark-to-marketaccounting may lead to considerable volatility in the financial statements andespecially the Income Statement (Laux and Leuz, 2009). Critically discuss themerits and flaws of FVA in relation to cost accounting. Recommended Reference Laux, C., & Leuz, C. (2009). The crisis of fair-value accounting: Making sense ofthe recent debate. Accounting, organizations and society, 34(6-7), 826-834.critically discuss why financial markets should be regulated in terms of asymmetric information, moral hazard and adverse selectionA situation in which one focuses on individual decisions rather than looking at them in the context of related decisions. Please match the description with the corresponding term below. A.Equity Premium B.Statistically Independent C.Equity Premium Puzzle D.Narrow Framing
- The role of management's intent increases the risk of material misstatement re: the Existence assertion for financial investments. Question options: True FalseA3) Finance Which one is a financial risk? Select one: a. Uncertainty about demand b. uncertainty about cost d. None of the aboveDiscuss how the free-rider problem aggravates adverse selection and moral hazard problems in financial markets.
- all financial instruments - no matter how complex the bells and whistles - are based on four simple needs." Which of the below is NOT of these "simple needs"? Group of answer choices Speculation. Raising Capital. Assumption of risk. Insuring Against Risk.4. All of the following points are true regarding the key principles of forecasting except: Select one: a. Financial statement forecasts must rely on assumptions that have external validity b. Financial statement forecasts must be internally consistent c. Financial statement forecasts need not be comprehensive d. Forecasts should not manifest wishful thinkingWhich one of the following statements is correct concerning unsystematic risk? An investor is rewarded for assuming unsystematic risk. Beta measures the level of unsystematic risk inherent in an individual security. Eliminating unsystematic risk is the responsibility of the individual investor. Standard deviation is a measure of unsystematic risk. Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk. оо O O
- 1. Which of the following statements is false? a. Risk neutrality means that an investor are not looking at risk in an investment, just returns. b. Risk aversion means that an investor prefer a fixed amount with certainty over a larger amount with risk. c. Risk seeking means that an investor is willing to accept the higher risk that goes with higher payoff. d. All of the above are false. e. None of the above are false.The theory is based on the notion that investors act rationally and consider all available information in the decision-making process, and hence investment markets are efficient, reflecting all available information in security prices. This describes Select one: a. conventional finance. b. irrational investors. c. behavioral finance. d. cognitive errors. e. None of the theseWhy does behavioral finance considered investors as "normal" yet biased and errors? Support being subject to decision-making your answer.