Question

Under Munich, a footwear manufacturer, recently announced that they have just designed a new footwear product which includes the latest technology. This news is totally unexpected and viewed as a major advancement in the footwear industry. Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?A. The price of Under Munich doesn't change, but then it increases one week after the announcement.B. The price of all stocks quickly increase in value and then all but Under Munich stock fall back to their original values.C. The price of Under Munich's stock suddenly increases, and then remains at that price.D. The price of Under Munich's stock increases rapidly, and then settles back to its pre-announcement level.

Answer 1

Answer:

The correct answer is letter "C": The price of Under Munich's stock suddenly increases, and then remains at that price.

Explanation:

Market efficiency indicates that stock price at any given time will fully reflect all available and relevant information. The efficient market hypothesis has three levels that describe market efficiency: strong efficiency, semi-strong efficiency, and weak efficiency.

In that sense, option "C" reflects a positive immediate change in Under Munich's stock price because of the news on footwear developments they are carrying out.