Suppose that interest rates unexpectedly rise and that Carter Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down. According to the efficient markets hypothesis, which of the these things make the price of Carter Corporation Stock fall?
A)both the interest rate rising and the revenue announcement
B)neither the interest rate rising nor the revenue announcement
C)only the interest rate rising
D)only the revenue announcement

Question

Quizplus · Accepted Answer

The efficient markets hypothesis suggests that stock prices reflect all available information, including unexpected changes in interest rates. Therefore, if interest rates rise unexpectedly, the stock price of Carter Corporation is likely to fall. However, the announcement of revenues being down but not as much as anticipated should not significantly affect the stock price, as this information was already factored into the market's expectations.

Suppose That Interest Rates Unexpectedly Rise and That Carter Corporation