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 following makes 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, stock prices reflect all available information. The unexpected rise in interest rates would likely cause the stock price to fall as higher interest rates can lead to lower economic growth and profitability, making stocks less attractive. However, the revenue announcement, being better than anticipated, would not cause the stock price to fall; it might even have a positive effect. Therefore, only the interest rate rising would cause the stock price to fall.

Suppose That Interest Rates Unexpectedly Rise and That FineLine Corporation