In the First Calendar Quarter a Company Reports That It

question 117

Multiple Choice

In the first calendar quarter a company reports that it expects profits to rise in the fourth quarter.The theory of efficient markets says we should expect the price of the company's stock to:

• A)Rise in the fourth quarter when the higher profits are actually seen.
• B)Fall immediately as stockholders will be disappointed about having to wait until the fourth quarter for higher profits.
• C)Rise immediately on the expectation of higher profits in the future.
• D)Rise around the third quarter since this information will take time to disseminate.

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Definitions:

Dominant Strategy

A dominant strategy is the best course of action for a player in a game, regardless of what the other players do, always resulting in a better outcome for the player.

Game Theory

The study of strategic interactions among rational decision-makers.

Prisoners' Dilemma

A scenario in game theory where two players, each pursuing their own best interests, fail to achieve the best result for both.

Nash Equilibrium

A concept in game theory where no player can benefit by changing their strategy while the other players' strategies remain unchanged.