Empirical Evidence Suggests That Upon Announcement of a New Equity

question 26

Multiple Choice

Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally:

• A) drop, perhaps because the new issue reflects management's view that common stock is currently overpriced.
• B) remain about the same since an efficient market anticipates a new equity issue.
• C) increase, perhaps because the issues are associated with positive NPV projects.
• D) increase, because the market supply is always less than demand.
• E) increase, because underwriters exercise their green shoe option.

---

Definitions:

Chloride

Compound containing chlorine—for example, salts of hydrochloric acid.

Potassium

A chemical element (K) that plays a significant role in the cellular processes of living organisms, particularly in nerve transmission and muscle contraction.

Skin

The body's largest organ, constituting the outer covering that protects against external factors, regulates temperature, and allows sensory perception.

Kidneys

Bean-shaped organs responsible for filtering waste products from the blood and excreting them, along with water, as urine.