Suppose that investors in Microsoft\'s stock were expecting earnings per share t

Question

Suppose that investors in Microsoft's stock were expecting earnings per share to be $3.35 for the fiscal year. At the end of the day, Microsoft reported an earnings per share of $3.55. If markets are efficient, then we would expect:

a. the stock price to slowly decrease throughout the trading day tomorrow.

b. the stock price to react negatively and open at lower price tomorrow.

c. the stock price to slowly increase throughout the trading day tomorrow.

d. the stock price to react positively and open at higher price tomorrow.

Explanation / Answer

1) Answer (D) The stock price to react positively and open at higher price tomorrow.

Explanation : Since the company was earning more than what investors expected will result in more demand for holding shares of such company.Due to that reason the stock will react positively and increase in a rapup speed and show a higher price tomorrow.

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