If stock prices are in-line with their fundamental determinants and interest rates do not change, then a change in the profit expectations by 20%

Question

Quizplus · Accepted Answer

A change in profit expectations will impact the stock price, but the extent of the impact will depend on the distribution of earnings over time. If the earnings are expected to increase substantially in the short term, the impact on the stock price may be higher than 20%. Conversely, if the earnings are expected to decrease in the long term, the impact may be lower than 20%. Therefore, the answer is D as the impact of a 20% change in profit expectations on the stock price can be more or less than 20% based on the expected distribution of earnings over time.

If Stock Prices Are In-Line with Their Fundamental Determinants and Interest