If a stock's market price is greater than its intrinsic value then
A) its internal rate of return to be lower than its required rate of return.
B) its internal rate of return to be higher than its required rate of return.
C) its internal rate of return to equal its required rate of return.
D) its future cash flows to have a present value higher than the market price when discounted at the required rate of return.

Question

Quizplus · Accepted Answer

When a stock's market price is greater than its intrinsic value, it suggests that investors are paying more for the stock than its estimated worth based on its future cash flows. This situation implies that the stock's internal rate of return (IRR), which is the rate of growth a project is expected to generate, is lower than the required rate of return. The required rate of return is the minimum return investors expect to compensate for the risk of the investment.

If a Stock's Market Price Is Greater Than Its Intrinsic