What must occur for a stock to be in equilibrium that is for there to be no consistent pressure for its price to depart from its current level?
For the stock market to be in equilibrium, that is, for there to be no strong pressure for prices to depart from their current levels. 1. Expected future returns must be equal to the required returns. 2.
Why might a stock at any point in time not to be in equilibrium?
Why might a stock at any point in time not be in equilibrium? At times, stock prices and equilibrium values are different, so stocks can be temporarily under/overvalued.
What is the beta of Security J?
0.75Security J has a beta of 0.75 while security K has a beta of 1.45.
When a stock's actual market price is equal to its intrinsic value the stock is in?
Equilibrium is the situation where the actual market price equals the intrinsic value, so investors are indifferent between buying or selling a stock. If a stock is in equilibrium then there is no fundamental imbalance, hence no pressure for a change in the stock's price.
Is the stock's true long run value more closely related to its intrinsic value or its current price?
From these definitions, you can see that a stock's "true" long-run value is more closely related to its intrinsic value rather than its current price. 1-2:When is a stock said to be in equilibrium?
What is beta of a stock?
Beta is a measure of a stock's volatility in relation to the overall market. By definition, the market, such as the S&P 500 Index, has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0.
What is beta and alpha?
Alpha and beta are two different parts of an equation used to explain the performance of stocks and investment funds. Beta is a measure of volatility relative to a benchmark, such as the S&P 500. Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations.
What does alpha mean for stocks?
excess returnAlpha (α) is a term used in investing to describe an investment strategy's ability to beat the market, or its "edge." Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that ...