Question

A stock's intrinsic value is an estimate of a stock's 'true' value based on accurate risk and return data. It can be estimated but not measured precisely. When a stock's actual market price is equal to its intrinsic value, the stock is in ____. The ___ investors' views determine a firm's actual stock price.

a) imbalance
b) stagnation
c) equilibrium

Answer 1

When a stock's market price is equal to its intrinsic value, it is in equilibrium. Investors' views determine a firm's actual stock price.

Step-by-step explanation:

The correct answer is c) equilibrium. When a stock's actual market price is equal to its intrinsic value, the stock is in equilibrium. This means that the stock is trading at its 'true' value based on accurate risk and return data.

The views of investors, both individual and analysts, play a key role in determining a firm's actual stock price. If investors view a firm's future prospects positively, they are more likely to buy the stock, increasing its demand and driving up its price. Similarly, if investors have a negative view of a firm's prospects, they are more likely to sell the stock, decreasing its demand and lowering its price.