+1 (909) 375-5650
4982 Parkway Street, Los Angeles, CA 90017
support@smartwritingservice.com
800-888

Earnings announcements by companies are closely followed by, and frequently result in, share price revisions. Two issues should come to mind. First, earnings announcements concern past periods, If the market values stocks based on expectations of the future, why are numbers summarizing past performance relevant? Second, these announcements concern accounting earnings. Going to chapter 2 in the Ross text, such earnings may have little to do with cash flow – so, again, why are they relevant?

Classify the following events as mostly systematic or mostly unsystematic and tell us why. Is the distinction clear in each case? a) Short term interest rates increase unexpectedly b) The interest rate a company pays on its short term debt borrowing is increased by its bank. c) Oil prices unexpectedly decline d) An oil tanker ruptures, creating a large oil spill e) A manufacturer loses a multimillion dollar product liability suit f) A Supreme Court decision substantially broadens producer liability for injuries suffered by product users.