Asked by Jonathan Ghansiam on Jul 21, 2024
Verified
IBM announces that earnings per share for the current quarter are $1.25; this figure is barely half of what investors and analysts expected. In an efficient market, the price of IBM stock will:
A) change immediately to reflect changes in investor expectations
B) Gradually fall over several days as investors assimilate the new information.
C) First fall, reflecting investors' surprise; then rise back somewhat as investors assimilate the new information.
D) Probably not change at all.
E) Fall only if there is additional unfavourable news about IBM announced at the same time.
Earnings Per Share
Earnings per share (EPS) is a financial metric that divides a company's profit by the number of its outstanding shares, indicating the company's profitability on a per-share basis.
Efficient Market
A market hypothesis that posits that asset prices fully reflect all available information, making it impossible to consistently achieve higher returns.
Investor Expectations
The assumptions or beliefs about future economic and financial market conditions that influence investment decisions.
- Recognize the implications of market efficiency on investment strategies and stock pricing.
Verified Answer
KS
Kaylynn SoperJul 23, 2024
Final Answer :
A
Explanation :
In an efficient market, prices adjust quickly to reflect new information. Therefore, if IBM announces earnings per share that are significantly below expectations, the stock price would immediately change to reflect this new information and the adjusted investor expectations.
Learning Objectives
- Recognize the implications of market efficiency on investment strategies and stock pricing.