Sometimes One Observes That the Price of a Company's Stock

question 1

Multiple Choice

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings. This phenomenon is

• A)clearly inconsistent with the efficient markets hypothesis.
• B)consistent with the efficient markets hypothesis if the earnings were not as high as anticipated.
• C)consistent with the efficient markets hypothesis if the earnings were not as low as anticipated.
• D)consistent with the efficient markets hypothesis if the favorable earnings were expected.

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Definitions:

Cash Dividend

A payment made by a corporation to its shareholders, usually in the form of cash, based on the number of shares they own.

Report Income

The act of documenting and declaring earned income within a specific period for tax and accounting purposes.

Cash Surrender Value

The amount of cash that an insurance policyholder can receive upon cancelling the policy before its maturity or an insured event occurs.

Insurance Policy

A contract between an insurance policyholder and an insurer, outlining the claims which the insurer is legally required to pay in exchange for an initial payment, known as a premium.