Suppose that interest rates unexpectedly rise and that FineLine Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down.According to the efficient markets hypothesis,which of the these things make the price of FineLine Corporation Stock fall?
A)both the interest rate rising and the revenue announcement
B)neither the interest rate rising nor the revenue announcement
C)only the interest rate rising
D)only the revenue announcement

Question

Quizplus · Accepted Answer

According to the efficient markets hypothesis, all publicly available information is already reflected in the stock price. Therefore, the announcement of FineLine Corporation's revenue being down as anticipated would not affect the stock price, as it was already factored in. However, an unexpected rise in interest rates would affect the stock price negatively as it increases the cost of borrowing for corporations and reduces profitability. Therefore, only the interest rate rising would make the price of FineLine Corporation stock fall.

Suppose That Interest Rates Unexpectedly Rise and That FineLine Corporation