Final answer:
The relationship between par value and market value of common stock is false. Market value is affected by various factors unrelated to the stock's par value, whereas the par value is primarily a legal formality. Investors look for returns through dividends or capital gains, and benefit from the market's high liquidity.
Step-by-step explanation:
The statement that there is a direct relationship between the par value and market value of common stock is false. Par value is a nominal value assigned to stock for legal purposes and does not typically reflect the actual value that the market assigns to a share of stock.
Market value is determined by numerous factors, including corporate performance, investor perceptions, and overall market conditions. Investors are primarily concerned with the rate of return, which can be in the form of dividends or capital gains. Liquidity is an advantage in the stock market because one can readily sell stock in publicly held companies for spendable money.