What does a marginal investor think about the firm's stock?
a.) A marginal investor thinks that the firm's stock at the current price is a good deal, and she would buy more stock if she had more money to invest. b.)
What determines the market price of a stock?
The value perceived by stock market investors determines the market price of a stock. A stock trading at a price below its intrinsic value is considered to be undervalued. A stock trading at a price above its intrinsic value is considered to be overvalued. Which of the following statements best describes a marginal investor?
What is the intrinsic value of a stock?
The intrinsic value of a company's stock, also known as its fundamental value, refers to the stock's "true" value based on accurate risk and return data. The value perceived by stock market investors determines the market price of a stock. A stock trading at a price below its intrinsic value is considered to be undervalued.
How does a company's stock price change in the short run?
In the short run, a company's stock price can make small to large price adjustments, depending on news releases and earnings reports. In the long run, a firm's stock price will depend largely on the firm's overall earnings.
What Is Market Price?
The market price is the current price at which an asset or service can be bought or sold. The market price of an asset or service is determined by the forces of supply and demand. The price at which quantity supplied equals quantity demanded is the market price.
Why is the spread $30 by $30.03?
Now the spread widens, and the price is $30 by $30.03 because all the share offered at $30.01 and $30.02 have been bought. Since $30.02 was the last traded price, this is the market price. Other traders may take action to close the spread. Since there are more buyers, the spread is closed by the bid adjusting upward.
Why do bids and offers change?
Bids and offers are constantly changing as the buyers and sellers change their minds about which price to buy or sell at. Also, as sellers sell to the bids, the price will drop, or as buyers buy from the offer, the price will rise.
What is the price at which quantity supplied equals quantity demanded?
The price at which quantity supplied equals quantity demanded is the market price. The market price is used to calculate consumer and economic surplus. Consumer surplus refers to the difference between the highest price a consumer is willing to pay for a good and the actual price they do pay for the good, or the market price .
What is economic surplus?
Economic surplus refers to two related quantities: consumer surplus and producer surplus. Producer surplus may also be referred to as profit: it is the amount that producers benefit by selling at the market price (provided that the market price is higher than the least that they would be willing to sell for).
What is supply shock?
A supply shock is an unexpected event that suddenly changes the supply of a good or service. A demand shock is a sudden event that increases or decreases the demand for a good or service. Some examples of supply shock are interest rate cuts, tax cuts, government stimulus, terrorist attacks, natural disasters, and stock market crashes.
What happens if you drop your bid to $50.25?
If the buyers no longer think that is a good price, they may drop their bid to $50.25. The sellers may agree or they may not. Someone may drop their offer to a lower price, or it may stay where it is. A trade only occurs if a seller interacts with the bid price, or a buyer interacts with the offer price.
What factors affect the price of a stock?
Investors will also factor in more fundamental factors into a stock's price, such as management characteristics and the economics of the industry. All of these factors influence the earning potential of the firm.
What factors drive up stock prices?
Other factors that influence stock price include the perception of management, new product launches, and any developments within the particular industry.
What is the goal of maximizing a company's profit?
Maximizing a company's profit and maximizing the stock price speaks to the same ultimate goal: seeing a company thrive and make money for its investors. While the goal is the same, the drivers of profits and stock prices are slightly different .
How does a stock price affect the long run?
In the long run, a firm's stock price will depend largely on the firm's overall earnings. So earnings, or profits, will be one of the strongest drivers for a company's stock.
Why do stocks change price?
Over the short term, there can be many substantial price shifts in a particular stock, but the vast majority of these price shifts are due to the changes in potential future earnings . The same can be said about the long-term valuations of a stock: earnings will be the main driver of the stock's price. After all, investors will not invest in a company that is not making, nor will ever make, money. This is one of the reasons the tech- bubble burst: Tech companies were trading at very large multiples —well into the hundreds—but they were not making any money.
How does good management affect stock prices?
At its most basic level, maximizing profits and ultimately stock prices depend on increasing revenues and decreasing costs associated with the products or services sold. Good management will produce earnings and industry growth, which will boost firm-specific sales.
What does P/E mean in stock market?
The price-to-earnings (P/E) ratio looks at a firm's current stock price relative to its per-share earnings, so as to assess the value of a company's shares; generally, a higher P/E ratio suggests higher growth.
How much of Abbey's portfolio is invested in Treasury?
Abbey allocates 80% of her portfolio for investments in short-term US Treasury bills.
What does marginal investor think?
a.) A marginal investor thinks that the firm's stock at the current price is a good deal, and she would buy more stock if she had more money to invest.
How much did Steve's grandfather loan him to start a coffee shop?
Steve's grandfather loans him $30,000 to start a small coffee shop in the East Village in Manhattan.
Does Jacob's Tantalizing Tees have an agency conflict?
No; as both the owner and operator of Jacob's Tantalizing Tees, Jacob has not created the necessary agency relationship through which an agency conflict can exist.
Who owns Jacob's Tantalizing Tees?
Jacob owns Jacob's Tantalizing Tees, a T-shirt shop in a small college town in Virginia. With a staff of three part-time employees, Jacob operates the business in accordance with his personal goals, dreams, and capabilities.
Is a stock undervalued?
A stock trading at a price below its intrinsic value is considered to be undervalued. A stock trading at a price above its intrinsic value is considered to be overvalued.