Why Is the Stock Price of a Company an Indication

question 57

Multiple Choice

Why is the stock price of a company an indication of the performance of the company's senior managers?

• A) Well-run companies are invariably highly profitable, which leads to a higher share price.
• B) In general, people want to invest in a well-managed corporation, which will drive up the price of shares.
• C) Investors who can see that a company is well-run will hold on to their shares, even if the company faces setbacks, since they know that the stock price will likely rise again.
• D) Larger companies tend to be better run and so have higher stock prices.

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Definitions:

Intrusions

Geological features formed when magma cools and solidifies before reaching the surface, creating bodies of igneous rock.

Mid-Ocean Ridges

Underwater mountain ranges formed by plate tectonics, where new oceanic crust is generated from upwelling magma.

Asthenosphere

The asthenosphere is the highly viscous, mechanically weak, and ductilely-deforming region of the upper mantle of the Earth, lying just below the lithosphere.

Transform Faults

A type of fault where two tectonic plates slide past each other horizontally, typically associated with earthquake activity.