Question 4 (6.5 Points) This question is related to the effects of information asymmetry on securities markets. Following many financial reporting failures, investors realized that the shares of many firms were overpriced as a result of information asymmetry. It may seem strange that markets can be efficient, and investors' confidence can still collapse. However, these seemingly conflicting notions can be reconciled through the concept of fundamental value. Required 2.5 a. Define the concept of fundamental value. Identify and explain how the concept of information asymmetry is related to fundamental value. b. Briefly explain the effect of information asymmetry on a firm's perceived risk. Indicate whether it will increase or decrease risk. Explain whether increased information asymmetry will lead to higher or lower security prices. c. Briefly explain the role of financial reporting in an efficient market with information asymmetry. 2