Reference no: EM132576709

Question 1: One of the potential benefits of fair values is that they represent the current exit price - the price at which an asset may be exchanged or liability transferred between knowledgeable parties at an arm's length transaction. For assets and liabilities with active markets, the fair value is the current market price. Assume that all assets and liabilities have active markets. Can investors earn abnormal returns if all assets and liabilities were measured at fair value? Assume that the market is semi-strong form efficient and use your understanding of accounting under non-ideal conditions to answer the question.