Fundamentals of Financial Management Study Set 1
Quiz 1: An Overview of Financial Management
If a Stock's Intrinsic Value Is Greater Than Its Market
If a stock's intrinsic value is greater than its market price,then the stock is overvalued and should be sold.
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For a stock to be in equilibrium as the book defines it,its market price should exceed its intrinsic value.
The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose,barring any new information coming out about the stock.It is the "marginal investor" who determines the actual stock price.
Managers always attempt to maximize the long-run value of their firms' stocks,or the stocks' intrinsic values.This is exactly what stockholders desire.Thus,conflicts between stockholders and managers are not possible.
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