I need help with Market Reactions please:) Thanks The chart below plots the stoc

Question

I need help with Market Reactions please:)

Thanks

The chart below plots the stock price of Ormiston Pharmaceuticals during afternoon trading on the same day, last Tuesday. At 2pm, the Foad and Drug Administratian (FDA) announced that a new drug recently subrmitted by Ormiston had been rejected and could not be sald to the public. Before the announcement, Ormiston's stock had a fundamental value of $46 per share; afterward, the fundamental value fell to $44. This chart shows the actual behavior of the stock's price that day. STOCK PRICE I$ 50 49 48 46 45 64 43 42 41 40 TIME (Pm Which of the following best characterizes the market reactian to the FDA announcement? O Delayed reaction O Overreaction and correction O Efficient market reaction Which of the following factors is most likely to lead to markets being more efficient? O Lower labor costs O Competition amongst investors O Lower corporate tax rates O Government regulation

Explanation / Answer

Answer(1)- Efficient market reaction is the correct option. It says that it is not posiible to beat the market. If market comes down because of some news, it is for a while only and it again goes up and gets stable. Impact of FDA anouncements will be only on Pharma stocks, specially on "Ormiston's share price. Overall market will not be effected by this news.

Answer(2)- Lower corporate tax rates will lead the market being more efficient as when company's tax will be less, their profits will be more and so the share prices will increase. When many companies' share prices will increase, market will go up.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.