Which of the following represents a stock's fundamental value?
A) The present value of its expected future dividend payments.
B) The price the stock would sell at in the midst of a rational bubble.
C) The product of all future dividend payments multiplied together.
D) The simple sum of its future dividend payments.
E) The price the stock would sell at if the interest rates were zero.

Question

Quizplus · Accepted Answer

A stock's fundamental value is based on its future expected dividend payments. Therefore, the present value of its expected future dividend payments represents its fundamental value. The other options, such as being in the midst of a rational bubble or assuming all future dividend payments are multiplied or added together, do not necessarily reflect the true fundamental value of the stock.

Which of the Following Represents a Stock's Fundamental Value