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/quiz?quiz_action-takeQuiz&quiz; probGuid-QNAPCOA8010100000041ebc4800800008 ctx-ream-00578ck-m 15 Overview of Financial Management ed Assignment | Read Chapter 1 | Back to Assignment Attempts: 2 5. Intrinsic values and stock prices Due Wednesday 06.20.18 at 11:45 PM Keep the Highest: 2/4 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 at a price above its intrinsic value is considered to be overvalued Which of the following statements best describes a marginal investor? O A marginal investor thinks that the firm's stock is priced too high, and she would only buy more stock if the price dropped sharply O A marginal investor would buy more stock if the price fell slightly, would sell stock if the price rose slightly and would maintain her current holding unless something were to change. O 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 An analyst with a leading investment bank tracks the stock of Mandalays Inc. According to her estimations, the value of Mandalays Inc.'s stock should be $37.32 per share, but Mandalays Inc.'s stock is trading at $45.59 per share on the New York Stock Exchange (NYSE). Considering the analyst's expectations, the stock is currently: 0 8 7 8 9

Explanation / Answer

QUESTION 1

Answer is: A marginal investor would buy more stock if the price fell slightly, would sell stock if the price rose slightly, and would maintain her current holding unless something were to change

This is by definition. Marginal investors are generally who decide the price of a share in short term. His actions reflect the beliefs of those people who are currently trading a stock.

QUESTION 2

Here, the stock under discussion is trading at a price which is higher than the intrinsic value. This implies, the stock is Overvalued by the market.

If the stock was trading at a price lower than the intrinsic value, the stock would have been undervalued.

If the stock's market price was equal to intrinsic value, the stock would be at equilibrium.

In the graph, orange portion is where the market price is lower than the intrinsic value - - > hence, stock is undervalued.

For blue portion is where the market price is higher than the intrinsic value - - > hence, stock is overvalued.

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