Fundamental analysis shows that Green Leaf Tea Company is fairly valued.Then Green Leaf Tea Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful tea producer.Suppose this has no effect on the price of the stock of Green Leaf Tea Company.
A) Fundamental analysis would now show the corporation is overvalued.The fact that the price was unchanged is consistent with the efficient markets hypothesis.
B) Fundamental analysis would now show the corporation is overvalued.The fact that the price was unchanged is not consistent with the efficient markets hypothesis.
C) Fundamental analysis would now show the corporation is undervalued.The fact that the price was unchanged is consistent with the efficient markets hypothesis.
D) Fundamental analysis would now show the corporation is undervalued.The fact that the price was unchanged is not consistent with the efficient markets hypothesis.

Question

Quizplus · Accepted Answer

Fundamental analysis would show the company is undervalued because the improvements should increase the company's value. The efficient markets hypothesis suggests that stock prices reflect all available information, so if the price remains unchanged despite positive news, it indicates the market is not fully efficient.

Fundamental Analysis Shows That Green Leaf Tea Company Is Fairly