Final answer:
If a stock is valued at $25 and sells for $25, it's fairly valued. Investment decisions beyond that fact depend on other factors, like investment strategies and market conditions. Returns from stock investments come from dividends or capital gains. The correct answer is option A. 3&6
Step-by-step explanation:
If the valuation of a stock is $25 and it currently sells for $25, the stock is considered to be fairly valued. This means that the market price of the stock is equal to the valuation by investors or analysts. In this case, the investor should neither consider the stock undervalued nor overvalued. Therefore, establishing a short (sell) position or a long (buy) position would be based on other factors such as the investor's individual strategy, risk tolerance, and market outlook. The investor could decide to either hold, buy, or sell the stock based on these factors and not strictly on the current valuation.
When we talk about the rate of return on an investment in stock, there are two main ways that an investor can earn money: through dividends paid by the firm or through capital gains by selling the stock for more than what was paid for it. This capital gain represents an increase in the value of the stock between the purchase and sale. The stock market can be unpredictable, with prices fluctuating widely, and it's possible for stocks to pay no dividends, to increase significantly in price, or to decrease to zero.