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Unformatted text preview: FINC 341 Chapter 1 Questions: 2,4,5,8,9,10 2: (page 10) Company B should have the higher price because there is more confidence in Company A. It is thought to be easy to evaluate therefore making it less risky. The success or lack thereof of projects such as these determines the stock prices of these companies. EX: Apple and Wal-Mart 4: (page 12) A stock is in equilibrium when its actual market price is equal to its intrinsic value. Intrinsic Value is an estimate of the stocks true value as calculated by a competent analyst who has the best available risk and return data. Market Price is based on perceived but possibly incorrect information as seen by the marginal investor. Market prices can and do differ from intrinsic values but eventually, the two values tend to converge. Managements goal should be to take actions designed to maximize the firms intrinsic value, not its current market price....
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This note was uploaded on 11/04/2009 for the course FINC 341 taught by Professor Guyton during the Spring '07 term at Texas A&M.
- Spring '07