Two Conditions Are Used to Determine Whether or Not a Stock

question 39

True/False

Two conditions are used to determine whether or not a stock is in equilibrium: (1)Does the stock's market price equal its intrinsic value as seen by the marginal investor, and (2)does the expected return on the stock as seen by the marginal investor equal this investor's required return? If either of these conditions, but not necessarily both, holds, then the stock is said to be in equilibrium.

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Definitions:

Preoperational

A stage in Jean Piaget’s theory of cognitive development, where children from about 2 to 7 years old learn through pretend play but still struggle with logic and taking the perspective of other people.

Reductive

A method or approach that simplifies complex systems or phenomena by breaking them down into their most basic components or aspects.

Analytical Thinking

The process of breaking down complex information into smaller components for better understanding or problem solving.

Logical

Pertaining to or characterized by clear, rational, and coherent reasoning or thinking.