Which of the following is true?
A) The buyer of a firm's stock is purchasing a fractional share in the firm's future net revenues.
B) When investors believe that a business decision by the management of a firm will increase the firm's future earnings, the price of the firm's stock will tend to rise.
C) Changing stock prices provide the board of directors and managers of a firm with a strong incentive to make good decisions and undertake productive projects.
D) All of the above are true.

Question

Quizplus · Accepted Answer

All of the statements are true. A) When someone buys stock in a company, they are buying a fractional ownership of the company, and thus a share of the future net revenues. B) If investors believe that a company's management has made a decision that will increase earnings, then the value of the stock will increase, as investors anticipate receiving a greater portion of those future earnings. C) When stock prices change, it can incentivize the board of directors and managers to make decisions and undertake projects that will increase the company's value and thus, the value of the stock.

Which of the Following Is True