Question

1. Acme Company just had a very successful IPO. Initial shares sold at a price far above their realistic value. The “buzz” on the streets is that this is a very promising stock. Demand for the stock is high and rising. Is the price of Acme Company's stock likely to rise or fall? Explain your prediction.

Answer 1

Answer: It is more likely that the Acme Company stock price will rise, because of its successful IPO, & the demand for the stock is both high and rising. Thus, the more people invest in the “hot” stock, the more the stock price will rise.

Answer 2

The price of Acme Company's stock will likely RISE.

There is a limited number of stocks available and because the demand for the stock is high and rising, the company needs to increase its price. The increase is price will make it more valuable to potential buyers and it will serve as deterrent to those who can't afford to buy the stock at its high price.

In short: supply is low, demand is high, resulting to an increase in price.