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Suppose You Own 100 Shares of IBM Stock Which You

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Essay

Suppose you own 100 shares of IBM stock which you intend to sell today. Since you will sell it in the secondary market,IBM will receive no direct cash flows as a consequence of your sale. Why,then,should IBM's management care about the price you get for your shares?


Definitions:

Low P/E Ratios

Indicators that a company's stock is potentially undervalued, calculated by dividing the current market price by the earnings per share.

High P/E

A stock with a high price-to-earnings ratio, often indicating expectations of future growth or overvaluation.

Dividend Yields

An economic indicator demonstrating the yearly dividend distribution of a firm in comparison to its share price.

Submartingale

A stochastic process in which the conditional expected value of a future observation, given the past, is at least as great as the present observation, often applied in financial modeling.

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