If the market is fully efficient,then an announcement by a firm of a new product with a high net present value will cause the market price of that firm's stock to
A)remain constant.
B)rise gradually over the next few days.
C)decline gradually over the next few days.
D)immediately increase to a new level equivalent to the increased value of the firm.
E)immediately decline to a new level equivalent to the decreased value of the firm.

Question

Quizplus · Accepted Answer

In a fully efficient market, all publicly available information is already incorporated into the current stock price. So, when a firm announces a new product with a high net present value, the news is already reflected in the current stock price. Therefore, the market price of the firm's stock will immediately increase to a new level equivalent to the increased value of the firm.

If the Market Is Fully Efficient,then an Announcement by a Firm