1. Stock prices and intrinsic values Aa Aa Benjamin Graham, the father of value
ID: 2384075 • Letter: 1
Question
1. Stock prices and intrinsic values Aa Aa Benjamin Graham, the father of value investing, once said, "In the short run, the market is a voting machine, but in the long run, the market is a weighing machine." In this quote, Benjamin Graham was referring to the key difference between the "price" and the "value" of a security In November 2006, Citigroup's stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007-2008 and by the end of October 2009, Citigroup's stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value Based on your understanding of stock prices and intrinsic values, which of the following statements is true? O A stock's intrinsic value is based on true investor returns O A stock's intrinsic value is based only on the perceived risk of a stock. Which of the following describe the reason (s) why maximization of intrinsic stock value benefits society. Check all that apply Most people have an important stake in the stock market Most investors appreciate the risk companies take to maximize their stocks People like to work for companies that minimize operating costs Successful companies benefit consumers Flash Player WIN 18,0,0, Q3 3.32 2004-2013 Aplia. All rights reserved Grade It Now Save & Continue CO 2013 Cengage Learning except as noted. All rights reservedExplanation / Answer
There is difference between the price and the value of the stock. Generally, the price of stock is determined in the short run by the perceived risk on the stock and the cash flows. In the long-run the value of the stock is determined by weighing it on the scale of true return to the investor.
The investment is a long-run game where investors evaluate a stock on the return they will be receiving.
Thus, the first option is correct choice.
The maximization of stock price is beneficial for the society. This is because society owns most of the stock, the company will be profitable if it will minimize operating costs, and successful companies’ benefits consumers by providing them better goods and services.
Therefore, the correct choices are 1st and 4th statements.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.