Which of the following options would imply that the 15 percent increase in stock price is fair?
Explanation:
When the company agreed to pay the fine, the market perceived it as acknowledgement of deceit and the valuation of such deceit is clear (from the fine amount). This acknowledgement of behaviour (deceit) and specifically the valuation or price of such behaviour becoming clear, gives lots more information to the market thereby increasing the stock price. Hence, 4 is the answer. Options 1 and 2 are wrong since stock price did not increase when the organization was exposed, but when the organization acknowledged. Option 3 is wrong as there is no data on stock price movement when the organization‘s ―fraud‖ was exposed. Acknowledgement of deceit resulted in the company's compliance with court order which is obligatory for a fraudulent company. Hence, option (e) cannot be the right answer. Hence, the correct answer is option 4.
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