If the Price of a Company's Stock Truly Reflects the Value

question 57

Multiple Choice

If the price of a company's stock truly reflects the value of a share in the company, then

• A)it is impossible for the stock price to change by 20% in a single day, as in 1987.
• B)it is impossible for the stock price to increase by 84% within a single year, as in 1999.
• C)stock prices can only change abruptly when accounting scandals are uncovered, as in 2002.
• D)abrupt stock price changes reflect abrupt changes in the public's perception of fundamentals and risk.

Know the impact of Federal Reserve policies on the economy, including inflation, interest rates, and the money supply.

Understand the mechanisms through which the Federal Reserve controls the money supply.

Recognize the historical context and purposes behind the establishment of the Federal Reserve System.

Understand the different tools of monetary policy, including open market operations, the discount rate, and reserve requirements.

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Definitions:

Unrealized Gain-Equity

The increase in the value of investments that a company holds in other companies' stocks, which have not been sold and thus the gain has not been realized.

Debt Securities

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, which include terms related to the amount, interest rate, and maturity date.

Maturity Value

The amount payable to the holder of a financial instrument at its maturity date, often the principal plus any final interest payment.

Owner Relationship

The legal and operational connections and responsibilities between the owner(s) and their business entity.