{"id":55329,"date":"2024-04-16T00:25:31","date_gmt":"2024-04-16T00:25:31","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=55329"},"modified":"2024-04-16T00:25:31","modified_gmt":"2024-04-16T00:25:31","slug":"if-the-intrinsic-value-of-a-share-is-less-than-the-market-price-which-of-the-most-reasonable","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/if-the-intrinsic-value-of-a-share-is-less-than-the-market-price-which-of-the-most-reasonable\/","title":{"rendered":"If the intrinsic value of a share is less than the market price, which of the most reasonable?"},"content":{"rendered":"

[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″]<\/p>\n

The correct answer is D. That market is undervaluing the share.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

Therefore, the correct answer is D. That market is undervaluing the share.<\/p>\n","protected":false},"excerpt":{"rendered":"

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