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)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 readily available to all investors, and prices adjust immediately to reflect all available information. Therefore, when a firm makes a positive announcement, investors will quickly incorporate this new information into the stock price, causing it to rise on the same day to the new price.

In an Efficient Market When a Firm Makes an Announcement