Home > Business Group > Question and Answer

Question:

Answers:

1. 
   krishna-agrawala Teacher
   Graduate School

   eNotes Editor

   The market price of a stock may fluctuate considerably as expectations of existing and prospective shareholders about the performance of the company changes. The prices are also affected by actual or expected block purchase or sale of stocks by major investors.

   However, apart from the market price of stocks we can also determine, or at least a fair value based on the real worth of the stock. There real worth of the stock of a company is equal to the real worth of the company divided by the total number of shares of that company. The worth of the company is dependent on the current and future earning capacity of the company. For some companies the value of the assets owned by the company may be very high although they may not be making any profit. In such cases the value of the assets may become the main determinant of the real stock prices. For example, there are many textile mills in Mumbai, India which have been closed down and there fore are not making any profits. However these textile mills own large pieces of land in locations where property prices are very high. Therefore stock prices of these companies are determined primarily by the expected price at which they can sell their land.

   Rate answer:

   • Flag as inappropriate

   Posted by krishna-agrawala on Friday May 29, 2009 at 12:53 AM