Suppose an Efficient Market Has Been Operating with Regard to Stock

question 30

Multiple Choice

Suppose an efficient market has been operating with regard to stock in a particular company and that company announces that its profits were down 50% from the previous period but the stock price rises after getting the news on a day when all of the other stocks are barely moving. This is

• A)absolutely illogical.
• B)at least potentially consistent with the efficient market hypothesis because investors may have been anticipating a 75% drop.
• C)at least potentially consistent with the efficient market hypothesis because investors may have been anticipating a 25% drop.
• D)at least potentially consistent with the efficient market hypothesis because investors may have been anticipating those 50% drop.

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Definitions:

Downstream Costs

Expenses incurred after the production process, including distribution, marketing, and customer service costs.

Customer Support

A service provided by a company to assist its customers in making cost-effective and correct use of a product, including assistance in planning, installation, training, troubleshooting, maintenance, upgrading, and disposal of a product.

Downstream Costs

Expenses that occur after the production process, such as distribution, marketing, and customer service costs.

Distribution

The process of making a product or service available for use or consumption by a consumer or business user.