ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The stock price stays the same.
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The stock price goes in the same direction as the stock market.
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The stock price goes up.
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The stock price goes down.
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Detailed explanation-1: -In general, strong earnings generally result in the stock price moving up (and vice versa). But some companies that are not making that much money still have a rocketing stock price. This rising price reflects investor expectations that the company will be profitable in the future.
Detailed explanation-2: -When the company is bought, it usually has an increase in its share price. An investor can sell shares on the stock exchange for the current market price at any time. The acquiring company will usually offer a premium price more than the current stock price to entice the target company to sell.
Detailed explanation-3: -If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. Understanding supply and demand is easy.
Detailed explanation-4: -How Profits Impact Stock Prices. While a company’s stock price will factor in many different variables, including the type of industry the firm operates in, its profits (or earnings) are a very strong proxy for the company’s stock price.
Detailed explanation-5: -Key Takeaways. When one company acquires another, the stock price of the acquiring company tends to dip temporarily, while the stock price of the target company tends to spike. The acquiring company’s share price drops because it often pays a premium for the target company, or incurs debt to finance the acquisition.