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The concept. of markat efficiency underpins almost all firancial theory and decision modeds. When finandal markets are effidint, the price of a secuity - such as a stare of a particular comporation's common stock-should be the present value estimate of the firm's expected cash flaws discounted by its appropriate fate of return (alco called the intrinsic valu Almost all finandial theory and decision models assume that the financial ficient. The informationsf efficiency of financial markets determines the ability of investors to "beat" the market and earn exess Jeturns on their investruents. If the markets are eficient, they will react rapidly as new relevant information becomes available. Financial theorists have identufied three levels of informational efliciency that reflect what information is incorporated in stock prices. Identily the form of capital market elfidency under the efficient market hypothesis described in the following statement: Current market prices reflect al relevant putlicdy avaitable information. This itatement is consistent with: Semistrong form efficiency Strong form efficiency Weak form efficiency This statement is consistent witts: Sernistrong form efliciency Strong form efficiency Weak form cficiency Consider that there is a semistrong form of efliciency in the markets. A pharmaceutical company announces that it has received Federal Drug Administration approval for a new allergy drug that completely prevents hay fever. The consensus analyst forecist for the company's earninos per share (EPS) is $4.50, but insiders know that, with this new drug, earnings will increase and drive the EPS to $5.00. What will happen when the company releases its next earnings feport? There will be some volatility in the stock price when the earnings report is released; it is difficult to determine the impact on the stock price. The stock price will increase and settie at a new equilibrium level. The stock price will not change, because the market already incorporated that information in the stock price when the announcement was made