The Relationship Between the Value and Price of a Stock

question 34

Multiple Choice

The relationship between the value and price of a stock suggests that:

• A) the equilibrium price of a stock strikes a balance between those who think the stock is worth more and those who think it's worth less at the current price.
• B) it is the market's best guess regarding the expected value of the company's future profits.
• C) stocks are overvalued.
• D) both A and B are true.

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Definitions:

Shareholders' Equity

The portion of the company's assets that belongs to the shareholders after all liabilities have been subtracted.

Dividends in Arrears

Unpaid dividends of cumulative preferred stock for the designated period.

Accumulated Other Comprehensive Income

A component of shareholders' equity that includes unrealized gains and losses on certain types of investments, not recognized in the income statement.