Please help me with Market efficiency 5. More on market efficiency Aa Aa Gumbel
ID: 2780100 • Letter: P
Question
Please help me with Market efficiency
5. More on market efficiency Aa Aa Gumbel Manufacturing's annual EPS for last year was $2.25. Later this week, Gumbel will announce this year's annual EPS. The consensus analyst forecast for this year's annual EPS is $3.00. Suppose the actual EPS will be $2.50, but only insiders know this fact. If the market is semistrong-form efficient, which of the following is most likely to happen when Gumbel publicly announces its current EPS? Gumbel's stock price will decrease because its EPS is lower than analysts expected Gumbel's stock price will increase because its EPS is higher than analysts expected O Gumbel's stock price will not change because the market already has incorporated that information into the stock price. Gumbel's stock price will increase because its EPS has increased this year O Gumbel's stock price will decrease because its EPS has increased this year. If the market is strong-form efficient, which of the following is most likely to happen when Gumbel publicly announces its current EPS? O Gumbel's stock price will not change because the market already has incorporated that information into the stock price. Gumbel's stock price will decrease because its EPS has increased this year. O Gumbel's stock price will increase because its EPS has increased this year. O Gumbel's stock price will decrease because its EPS is lower than analysts expected. O Gumbel's stock price will increase because its EPS is higher than analysts expected.Explanation / Answer
Last Annual EPS =$2.25
Analyst Forecasts for current year =$3.00
Actuals for current year =$2.50
1.) The price of Gumbel will decrease because its EPS is lower than analysts expectations. The forecast of $3.00 EPS was already built in its price before declaration of results.
Hence, Option-(a) is correct.
2.) Same answer as in Part-1. Here, option-(d) is correct.