Why Must Care Be Taken When Comparing a Firm's Share

question 67

Multiple Choice

Why must care be taken when comparing a firm's share price to its operating income?

• A)Both share price and operating income are related to the whole firm.
• B)Share price is a quantity related to the entire firm,while operating income is an amount that is related solely to equity holders.
• C)Both share price and operating income are related solely to equity holders.
• D)Share price is a quantity related to equity holders,while operating income is an amount that is related to the whole firm.
• E)Share price is a quantity related to the enterprise value of the firm,while operating income is related to the equity holders.

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Definitions:

Time Value

A concept stating the value of money is affected by time, primarily due to the potential earning capacity of money over time.

Stock Volatility

This is a measure of the fluctuation in the price of a stock over time, indicating the security's stability or instability.

Time To Expiration

The period remaining until the expiration date of a financial instrument, such as an option or futures contract.

Exercise Price

The price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset or security.