Suppose XYZ Corporation is traded on the New York Stock Exchange. XYZ’

Suppose XYZ Corporation is traded on the New York Stock Exchange. XYZ’s closing price on
Monday is $20 per share. After the market closes on Monday, XYZ makes a surprise announcement
that it has obtained a major new customer.

XYZ’s stock will likely
A) open above $20 because the positive news will result in a higher valuation even though the
stock has not yet traded.
B) remain at $20 per share because in efficient markets the price already reflects all information.
C) open below $20 because the surprise announcement creates more uncertainty.
D) open at $20 per share on Tuesday and then increase as more investors read the announcement
in the Wall Street Journal.

ANSWER

A