Fundamental analysis shows that Moonlight Company is fairly valued. Then Moonlight Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer. Suppose this has no effect on the price of the stock of Moonlight Company.
A)Fundamental analysis would now show the corporation is overvalued. The fact that the price was unchanged is consistent with the efficient markets hypothesis.
B)Fundamental analysis would now show the corporation is overvalued. The fact that the price was unchanged is not consistent with the efficient markets hypothesis.
C)Fundamental analysis would now show the corporation is undervalued. The fact that the price was unchanged is consistent with the efficient markets hypothesis.
D)Fundamental analysis would now show the corporation is undervalued. The fact that the price was unchanged is not consistent with the efficient markets hypothesis.

Question

Quizplus · Accepted Answer

Fundamental analysis would now show the corporation is undervalued due to the improvements and new CEO. The unchanged price suggests the market has not yet incorporated this new information, which is inconsistent with the efficient markets hypothesis.

Fundamental Analysis Shows That Moonlight Company Is Fairly Valued