(9A) If a Stock's Market Price Exceeds Its Intrinsic Value

question 11

True/False

(9A). If a stock's market price exceeds its intrinsic value as seen by the marginal investor, then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

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Definitions:

Current Ratio

A financial ratio indicating how well a company can settle short-term debts using its current assets.

Acid-test Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its quick assets including cash, marketable securities, and receivables.

Income from Continuing Operations

This refers to the earnings generated from the normal business activities excluding one-time transactions, discontinued operations, and other irregular items.

Loss on Discontinuance

A financial loss that occurs as a result of the cessation of a business unit or operation.