which of the following does not correctly complete this sentence: In general the
ID: 2756471 • Letter: W
Question
which of the following does not correctly complete this sentence: In general the link between an information announcement and the stock price is that_____ A) the expected stock return will change if the announcement contains a surprise component B) the stock price will not change if the announcement provided only anticipated info C) only announcements that have been discounted will affect the stock price D) in order for the price of the stock to change, the announcement must be relevant to that particular stock and must be unanticipated E) if mkts are efficient in the semi strong form, the mkt will react rapidly to the new info
Explanation / Answer
In general the link between an information announcement and the stock price is that if the stock prices does not reflect the information to be announced,that is the information contains a surprise component which is not known to the market, then the expected stock return will change if the announcement contains a surprise component thus A correctly complete this sentence.
if the stock prices already reflect the information to be announced that is the market already knew the information(anticipated information) to be announced then the info must be reflected in the stock prices therefore the stock price will not change if the announcement provided only anticipated info.Thus B correctly complete this sentence.Thus in order for the price of the stock to change, the announcement must be relevant to that particular stock and must be unanticipated therefore D) correctly complete this sentence.
E) if mkts are efficient in the semi strong form, the mkt will react rapidly to the new info also correctly complete this sentence.
C)is the answer, only announcements that have been discounted will affect the stock price does not correctly complete this sentence.The announcements that have been discounted have been already taken into consideration by investors and reflects in the stock price already therefore announcements that have been discounted already will not affect the stock price.
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