What Is the Current Price of a Share of Stock

question 64

Multiple Choice

What is the current price of a share of stock for a firm with $5 million in balance-sheet equity, 500,000 shares of stock outstanding, and a price/book value ratio of 4? (Use values in dollars)

• A)$2.50
• B)$10.00
• C)$20.00
• D)$40.00

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Definitions:

Maturity

The date on which the principal amount of a loan, bond, or other financial instrument becomes due and payable.

Arbitrage

The practice of buying and selling equivalent assets in different markets to take advantage of a price difference.

Law of One Price

An economic theory that states that in efficient markets, identical goods must have only one price when prices are expressed in a common currency, absent any transaction costs and tariffs.

Treasury Bond

A long-term, interest-bearing security issued by the U.S. government.