[amp_mcq option1=”That shares have lesser degree of risk” option2=”That market is over valuing the shares” option3=”That the company is high dividend paying” option4=”That market is undervaluing the share” correct=”option4″]
The correct answer is D. That market is undervaluing the share.
The intrinsic value of a share is the theoretical price that a share should trade at, based on its fundamental factors such as its earnings, assets, and cash flow. The market price of a share is the price that a share is actually trading at in the market. If the intrinsic value of a share is less than the market price, it means that the market is overvaluing the share. This can happen for a number of reasons, such as if the market is optimistic about the company’s future prospects or if there is a shortage of shares available to trade.
Option A is incorrect because the degree of risk of a share is not related to its intrinsic value. A share with a high degree of risk can still have a high intrinsic value if it has the potential to generate high returns.
Option B is incorrect because the market is not always rational. The market can overvalue or undervalue shares for a variety of reasons, such as investor sentiment or technical factors.
Option C is incorrect because a high dividend paying company does not necessarily have a high intrinsic value. A company can pay a high dividend even if it is not generating enough cash flow to cover the dividend.
Therefore, the correct answer is D. That market is undervaluing the share.