ABC Company Stock Currently Has a Market Value Equivalent to Its

question 95

Multiple Choice

ABC Company stock currently has a market value equivalent to its intrinsic value. Marco perceives that ABC Company is increasing its level of risk and therefore Marco increases his required rate of return on ABC stock. This change in the required rate of return

• A) will reduce the intrinsic value of ABC stock to Marco.
• B) will increase the intrinsic value of ABC stock to Marco.
• C) will change the intrinsic value but the direction of the change cannot be determined.
• D) is a signal to Marco that he should buy more ABC Company stock.

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Definitions:

Note Payable

A written promise to pay a specific amount to a party on a certain date or on demand. It is a liability in the books of the borrower.

Due Date

The specified date by which a payment must be made, or a task or assignment must be completed.

Defined Contribution Plan

A pension plan that requires a fixed amount of money to be invested on the employee’s behalf during the employee’s working years.

Annual Pension Benefit

The amount a retiree receives yearly from their pension plan, which is based on factors such as salary history and years of service.