ACCA Advanced Financial Management (AFM) Practice Exam

Which of the following best describes the outcome of public industrial issues in terms of stock price?

1. Increased volatility

2. 3% stock price increase

3. 3% stock price decline

4. Market consensus

The correct answer is: 3% stock price decline

The option indicating a 3% stock price decline accurately reflects a scenario that can be observed following a public industrial issue. This outcome can result from a variety of factors including investor sentiment, market conditions, and the nature of the issue being disclosed. When a company faces a public industrial issue, it can lead to uncertainty and a potential loss of confidence among investors, prompting them to sell shares, which in turn lowers the stock price. If the public industrial issue is perceived as significant or damaging, it could result in a substantial markdown of the stock's value as investors reassess the company's risk profile and future earning potential. The notion of a specific percentage decline reflects the market's reaction to negative news and demonstrates how external factors can influence investor behavior and stock valuation. In contrast, the other outcomes such as increased volatility, a 3% stock price increase, or market consensus do not capture the common immediate effects typically associated with negative public disclosures. Volatility may occur, but it does not directly reflect a definitive outcome like a decline in stock price. A stock price increase, following negative news, would be atypical, and market consensus generally signifies a balanced view rather than a specific directional price change. Thus, the notion of a decline in stock price stands