A stock's price is simply the current market price, and it is easily observed for publicly traded companies. By contrast, intrinsic value, which represents the "true" value of the company's stock, cannot be directly observed and must instead be estimated. True or false?

Question

Ashlee Carroll

Business

17 September, 17:49

A stock's price is simply the current market price, and it is easily observed for publicly traded companies. By contrast, intrinsic value, which represents the "true" value of the company's stock, cannot be directly observed and must instead be estimated. True or false?

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Answers (1)

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Aries · Answer 1

The correct answer is true.

Explanation:

A stock price is the current market price of the stock. It does not represent the intrinsic value of the stock. The intrinsic value of a stock depends on the return it will provide.

The return or cash flow generated from the stock includes two components the dividend received on the stock and the price received after selling the stock.

The market price of the stock does not represent these values directly and thus these values need to be estimated. There are a number of valuation methods to find the future value of a stock.