Question

A person may be willing to pay more than the fundamental value of a stock today if he or she believes that someone else will pay even more for it in the near future. When many people purchase stocks based on this reasoning, the stock market can develop: a.Efficient markets b.Moral hazard c.A speculative bubble

Answer 1

speculative bubble

Step-by-step explanation:

In simple words, A financial bubble is a increase in asset prices within a certain market, product, or investment vehicle that is caused by optimism as contrasted to certain asset class dynamics.

Typically, a financial bubble is triggered by unrealistic expectations of potential prosperity, market inflation or other activities that may cause asset prices to rise.

This optimism and subsequent action drives greater levels of trade, and as more people converge around the increased demand, buyers outstrip sellers, driving values above what an unbiased intrinsic worth analysis would imply.