In an eﬃcient market when a ﬁrm makes an announcement of a new product or product enhancement with superior technology providing positive NPV, the share price will:
A)rise gradually over the next few days.
B)decline gradually over the next few days.
C)rise on the same day to the new price.
D)stay at the same price, with no net effect.
E)drop on the same day to the new price.

Question

Quizplus · Accepted Answer

In an efficient market, information is quickly absorbed and reflected in the stock prices. Therefore, when a firm announces a new product or enhancement that is expected to provide positive net present value (NPV), the share price will adjust immediately to reflect this new information, rising on the same day to the new price level.

In an Eﬃcient Market When a ﬁRm Makes an Announcement