The value of a common stock today depends on:
A) Number of shares outstanding and the number of shareholders
B) The expected future dividends and the discount rate
C) The Wall Street analysts
D) Present value of the future earnings per share

Question

Quizplus · Accepted Answer

The value of a common stock today depends on the expected future dividends and the discount rate. Expected future dividends are an indicator of the future cash flows that shareholders may receive, while the discount rate reflects the level of risk associated with the stock. Other factors, such as the number of shares outstanding and the number of shareholders, or the opinion of Wall Street analysts, may also influence the stock price in the short term, but in the long run, the value of a stock is mostly determined by its ability to generate future cash flows. Therefore, choice B is the best answer.

The Value of a Common Stock Today Depends On