- This topic has 6 replies, 2 voices, and was last updated 3 years ago by
.
- Posts
Hello tutor, this is myself made question. It will be irrelevant but I am confused so want to clear my understand.
We have share price of $6 yesterday. A meeting was held today where directors has some discussions. An information about increase in share price of $2 will be publicly annouced today. And further increase in share price of $3 will be announced tomorrow.
What is share price at the close of market today?
I think, Strong form market will have share price of $11. Semi-strong market will have $8.
I can not understand about weak form. Can you help me?
Thank you.Hello, tutor if you are unable to understand the question above as I have written myself so please help me in this.
Tryde Co is a listed company which has 800 million ordinary shares in issue.
Yesterday the ordinary share price closed at $6.00. Two days earlier, the board of directors approved the launch of two new innovative products, but this has not been publicly announced.Product A has an NPV of $40m. The decision to launch product A will be announced publicly tomorrow. Product B has an NPV of $160m. The decision to launch product B will be announced publicly this morning. Assume all other things are equal and that the capital markets believe the projected NPVs. Both products will be financed using internally generated funds.
What will the ordinary share price be at the end of today if the capital market is (1) semi strong form efficient and (2) strong form efficient?
Answer is (i) 6.2 (ii) 6.
Can you tell me what was answer if weak-form market and why?
For your first question, the directors cannot ever announce an increase in the share price. It is investors who determine the share price depending on their expectations.
For your second question, the share price would stay at $6 because regardless of the two projects then (all other things being equal) there is nothing happening that would cause the share price to change.
Can you explain the second answer please? I am not getting it. A bit more explanation will mean alot.
Sorry for disturbing.If it is weak form, then the share price moves more at random and not because of specific announcements. So the share price might well change from the current $6 but not because of announcements about these two projects. Since the question says ‘assuming all other things are equal’ there is nothing to inform us about why the share price should be any different.
- The topic ‘Question’ is closed to new replies.