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

Question

Quizplus · Accepted Answer

In an efficient market, new and positive information about a company is quickly reflected in its stock price. Therefore, if a firm announces a new product or product enhancement with superior technology providing positive net present value (NPV), investors will see this as a positive development for the company and rush to buy its stock, causing the price to rise on the same day to the new price.

In an Efficient Market When a Firm Makes an Announcement