Asked by Nicole Nagatoshi on May 03, 2024

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Suppose that interest rates unexpectedly rise and that FineLine Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down. According to the efficient markets hypothesis, which of the following makes the price of FineLine Corporation Stock fall?

A) Both the interest rate rising and the revenue announcement
B) Neither the interest rate rising nor the revenue announcement
C) Only the interest rate rising
D) Only the revenue announcement

Efficient Markets Hypothesis

A theory that suggests financial markets are informationally efficient, meaning prices of traded assets reflect all available information at any given time.

Interest Rates

The cost of borrowing money or the return on investment for savings, often expressed as a percentage.

Revenue Announcement

Revenue announcement refers to a company publicly disclosing its revenue figures for a specific period, which can impact its stock price and investor perception.

  • Discern and fathom the repercussions of news dissemination and corporate operations on stock market prices pursuant to the principles of the Efficient Market Hypothesis.
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DB
Domingo BazanMay 09, 2024
Final Answer :
C
Explanation :
According to the efficient markets hypothesis, stock prices reflect all available information. The unexpected rise in interest rates would likely cause the stock price to fall as higher interest rates can lead to lower economic growth and profitability, making stocks less attractive. However, the revenue announcement, being better than anticipated, would not cause the stock price to fall; it might even have a positive effect. Therefore, only the interest rate rising would cause the stock price to fall.