The CEO of JLI Corp.decided to expand into a new market in 2010.At the end of 2010,JLI's stock price had decreased 5% since the beginning of the year.Which of the following statements is MOST correct?
A) The CEO made a poor decision to expand because the stock price decreased during the year.
B) The CEO made a poor decision to expand because the company's profits for the year obviously decreased, causing the drop in stock price.
C) The CEO's decision may have been optimal, keeping the stock price from falling more than 5% for the year.
D) CEO decisions are irrelevant because the efficient market determines the value of a company's stock.

Question

Quizplus · Accepted Answer

The fact that JLI's stock price only decreased 5% after expanding into a new market suggests that the CEO's decision was not necessarily a poor one. The market may have perceived the expansion as positive, which kept the stock price from falling further. Option D is incorrect because while the efficient market hypothesis suggests that stock prices reflect all available information, CEO decisions and actions can still have an impact on the market's perception of the company and its stock. Options A and B are both too simplistic and do not take into account other factors that may have affected JLI's stock price during the year.