Fundamentally a stock price is the _______ future earnings per share.

Question

Quizplus · Accepted Answer

A stock price is based on the present value of expected future earnings per share. This is because investors are willing to pay a price today for a share of a company based on the expected future profits the company will generate. The present value of these expected profits takes into account the time value of money and the uncertainty of future earnings. The sum of expected future earnings per share (A) and the future value of expected future earnings per share (C) do not accurately reflect the current value of the stock. Present value of only known earnings (D) is not applicable as stock prices are based on expected future earnings, not just known present earnings.

Fundamentally a Stock Price Is the _______ Future Earnings Per