Say whether each of the following events would likely cause the price of Google

Question

Say whether each of the following events would likely cause the price of Google stock to go up, go down, or not change:

a. A competitor launches a search engine that’s better than Google’s.

b. The corporate income tax rate is significantly reduced.

c. Google’s board of directors becomes dominated by close friends and relatives of its top management.

d. The price of wireless Internet connections unexpectedly drops, so more and more people use the Internet.

e. Google announces a profit of $10 billion, matching analysts’ expectations.

Explanation / Answer

a. A competitor launches a search engine that’s better than Google’s: GO DOWN (AS DEMAND FOR GOOGLE WILL REDUCE)

b. The corporate income tax rate is significantly reduced. INCREASE (AS DEMAND FOR GOOGLE SHARES WILL INCREASE)

c. Google’s board of directors becomes dominated by close friends and relatives of its top management: GO DOWN (AS EFFICIENT DECISION MAKING WOULD REDUCE, THEREBY REDUCING DEMAND)

d. The price of wireless Internet connections unexpectedly drops, so more and more people use the Internet: GO UP (AS DEMAND FOR GOOGLE WILL INCREASE)

e. Google announces a profit of $10 billion, matching analysts’ expectations: GO UP (AS DEMAND FOR GOOGLE SHARES WILL INCREASE)

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