The intrinsic value of a company's stock, also known as its fundamental value, refers to the stock's true value based on expected future cash flows and the risks involved. The value perceived by stock market investors determines the market price of a stock. A stock trading at a price below its intrinsic value is considered to be undervalued. A stock trading at a price above its intrinsic value is considered to be overvalued. In a state of market equilibrium, the intrinsic value of the stock will be the market price of the stock. An analyst with a leading investment bank tracks the stock of Mandalays Inc. According to her estimations, the value of Mandalays Inc.'s stock should be $115.24 per share, but Mandalays Inc.'s stock is trading at $89.57 per share on the New York Stock Exchange (NYSE). Considering the analyst's expectations, the stock is currently: O Undervalued O In equilibrium O Overvalued

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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1. Intrinsic values and stock prices
The intrinsic value of a company's stock, also known as its fundamental value, refers to the stock's true value based on expected future cash flows
and the risks involved. The value perceived by stock market investors determines the market price of a stock.
A stock trading at a price below its intrinsic value is considered to be undervalued. A stock trading at a price above its intrinsic value is considered to
be overvalued.
In a state of market equilibrium, the intrinsic value of the stock will be
the market price of the stock.
An analyst with a leading investment bank tracks the stock of Mandalays Inc. According to her estimations, the value of Mandalays Inc.'s stock should
be $115.24 per share, but Mandalays Inc.'s stock is trading at $89.57 per share on the New York Stock Exchange (NYSE). Considering the analyst's
expectations, the stock is currently:
Undervalued
In equilibrium
O Overvalued
Transcribed Image Text:1. Intrinsic values and stock prices The intrinsic value of a company's stock, also known as its fundamental value, refers to the stock's true value based on expected future cash flows and the risks involved. The value perceived by stock market investors determines the market price of a stock. A stock trading at a price below its intrinsic value is considered to be undervalued. A stock trading at a price above its intrinsic value is considered to be overvalued. In a state of market equilibrium, the intrinsic value of the stock will be the market price of the stock. An analyst with a leading investment bank tracks the stock of Mandalays Inc. According to her estimations, the value of Mandalays Inc.'s stock should be $115.24 per share, but Mandalays Inc.'s stock is trading at $89.57 per share on the New York Stock Exchange (NYSE). Considering the analyst's expectations, the stock is currently: Undervalued In equilibrium O Overvalued
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