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21 Feb 2025, 22:53
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The Securities Trading Commission (STC) recently examined the acquisitions of several firms listed in the public stock market in 2000. The investigators wanted to examine the extent to which four different variables -- market capitalization, management's growth expectations (as measured by earnings growth), firm size, and investor sentiment -- affected suspicious insider trading activity. They hypothesized that all four variables would show a strong positive correlation to suspicious insider trading activity. However, after examining the acquisitions listed, they were surprised to find that none of the variables showed a strong positive correlation with suspicious insider trading activity, and in fact market capitalization and investor sentiment both showed a strong negative correlation.
The investigators also discovered that nearly all of these acquisitions seemed to have a slight jump in stock price in the days prior to acquisition, suggesting suspicious insider trading activity was prevalent. Such insider trading activity, if true, constitutes unfairness because it allows insiders to make a quick guaranteed profit that public investors have no access to. Investigators noted that new enforcement will be needed to assure a more fair and honest stock market.
The investigators also discovered that nearly all of these acquisitions seemed to have a slight jump in stock price in the days prior to acquisition, suggesting suspicious insider trading activity was prevalent. Such insider trading activity, if true, constitutes unfairness because it allows insiders to make a quick guaranteed profit that public investors have no access to. Investigators noted that new enforcement will be needed to assure a more fair and honest stock market.
Acquisitions of firms from buyers with larger market caps were more likely to have suspicious insider trading activity.: Not Inferable
Woohoo set its selling price lower than it should have.: Not Inferable
At least one of the firms examined by the STC did not have suspicious insider trading activity.: Inferable
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
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58% (03:08) correct
42%
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1. For each of the following statements, select Inferable if the statement is reasonably inferable from the information provided about the acquisitions. Otherwise, select Not Inferable.
| Inferable | Not Inferable | |
| Acquisitions of firms from buyers with larger market caps were more likely to have suspicious insider trading activity. | ||
| Woohoo set its selling price lower than it should have. | ||
| At least one of the firms examined by the STC did not have suspicious insider trading activity. |
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Official Answer
Acquisitions of firms from buyers with larger market caps were more likely to have suspicious insider trading activity.: Not Inferable
Woohoo set its selling price lower than it should have.: Not Inferable
At least one of the firms examined by the STC did not have suspicious insider trading activity.: Inferable
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21 Feb 2025, 23:50
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Bismuth83
solution:
1 Acquisition of firms from buyers with larger market caps were more likely to have suspicious insider trading activity. It is not inferable that to determine the market capitalization we need to multiply the number of the company's outstanding shares by its stock price per share. And we have no information about the outstanding shares.
2. Woohoo set its selling price lower than it should have. Not inferable.
3. At least one of the firms examined by the STC did not have suspicious insider trading activity. Inferable As FaceMake is the only company with no suspicious insider trading activity.
23 Feb 2025, 23:00
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1. We need to figure out whether the following statements can be inferred with the information given.
2. Acquisitions of firms from buyers with larger market caps were more likely to have suspicious insider trading activity. Neither of the tabs give us any information on market caps. So, this statement is not inferable.
3. Woohoo set its selling price lower than it should have. We are given the selling price but there is no information on what is recommended or what the selling price should be. So, this statement is not inferable.
4. At least one of the firms examined by the STC did not have suspicious insider trading activity. The first tab explains that the percent increase is an indicator of suspicious insider trading activity. FaceMake has a 0% increase, which shows that it doesn't have it. So, this statement is inferable.
2. Acquisitions of firms from buyers with larger market caps were more likely to have suspicious insider trading activity. Neither of the tabs give us any information on market caps. So, this statement is not inferable.
3. Woohoo set its selling price lower than it should have. We are given the selling price but there is no information on what is recommended or what the selling price should be. So, this statement is not inferable.
4. At least one of the firms examined by the STC did not have suspicious insider trading activity. The first tab explains that the percent increase is an indicator of suspicious insider trading activity. FaceMake has a 0% increase, which shows that it doesn't have it. So, this statement is inferable.
