How Do Stock Prices Act as a Signal for the Future

question 213

Multiple Choice

How do stock prices act as a signal for the future value of the firm?

• A) If firms merge, stock prices could rise indicating that the merger can result in greater profitability.
• B) If stock prices rise, they could be indicating future profitability for the firm.
• C) If stock prices fall, they could be indicating declining economic conditions.
• D) All of these possibilities are correct.

---

Definitions:

Vygotsky

A Soviet psychologist famous for his theories on cognitive development, particularly the concept of the Zone of Proximal Development.

Infant Cognition

The study of how very young children learn and think, including processes like perception, memory, and problem-solving.

Monozygotic Twins

Individuals who originate from a single fertilized egg that splits and develops into two embryos, sharing 100% of their genes.

Dizygotic Twins

Also known as fraternal twins, these are siblings born at the same time but from two separate eggs fertilized by two different sperm.