Question

In 2016, shares of Chipotle Mexican Grill lost more than half their value after widely reported incidents of customers suffering from food poisoning after eating at the restaurants. The change in stock price illustrates which principle?

Group of answer choices
a) Market prices reflect information
b) Individuals respond to incentives.
c) Cash flows are the source of value.
d) The time-value of money.

Answer 1

The change in Chipotle Mexican Grill's stock price in 2016 illustrates the principle of market prices reflecting information.

Step-by-step explanation:

The change in stock price of Chipotle Mexican Grill in 2016 illustrates the principle of market prices reflect information. After widely reported incidents of customers suffering from food poisoning, the negative information affected investor expectations and caused the stock price to drop by more than half.

This principle suggests that stock prices are influenced by the information available to investors and how they interpret it. In the case of Chipotle, the reports of food poisoning led to a negative perception of the company's prospects and resulted in a decline in its stock price.

Other principles mentioned, such as individuals responding to incentives, cash flows being the source of value, and the time value of money, may also apply in different contexts but are not directly relevant to the stock price change in Chipotle's case.