5. Intrinsic values and stock prices Aa Aa The intrinsic value of a company’s stock, also…
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Question “5. Intrinsic values and stock prices Aa Aa The intrinsic value of a company’s stock, also…”
5. Intrinsic values and stock prices Aa Aa The intrinsic value of a company’s stock, also known as its fundamental value, refers to the stock’s true value based on expected future cash flows and the risks involved. 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 ata price above its intrinsic value is considered to be overvalued In a state of market equilibrium, the intrinsic value of the stock will be stock. the market price of the An analyst with a leading investment bank tracks the stock of Mandalays Inc. According to her estimations, the alue of Mandalays Inc.’s stock should be $28.95 per share, but Mandalays Inc.’s stock is trading at $33.58 per share on the New York Stock Exchange (NYSE). Considering the analyst’s expectations, the stock is currently: O In equilibrium Undervalued The following graph shows a stock’s actual market price and intrinsic value over time. The intrinsic value comes from anather research analyst. Use the dropdown menus on the graph to label the periods in which the stock was undervalued or overvalued. STOCK PRICE (Dollars 40 38 36 Actual Stock Price 32 30 28 Intrinsic Value 24 20 2000 2001 2002 2003 2004 2005 YEARS
Answer
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- In a market equilibrium, the intrinsic price of the stock is equal to its market price
- The analyst expects that the stock will be : Overvalued
- Overvalued
- Lower side of graph: undervalued
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