The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

-When the price of a stock rises significantly higher than what can be justified by the dividends the firm can be expected to pay in the future, a(n) _____ is said to have occurred.

Question

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2
 
-When the price of a stock rises significantly higher than what can be justified by the dividends the firm can be expected to pay in the future, a(n) _____ is said to have occurred.

Quizplus · Accepted Answer

When the price of a stock rises significantly higher than what can be justified by the dividends the firm can be expected to pay in the future, it is said to be in a stock market bubble. This happens when investors become overly optimistic about the future growth prospects of a company or industry and bid up the price of shares beyond their true value. A stock market crash is a sudden and dramatic drop in stock prices, whereas a bull run refers to a sustained period of rising stock prices. Arbitrage involves exploiting price discrepancies between different markets or securities, and short selling involves selling borrowed shares in the hopes of buying them back later at a lower price to make a profit.

The Figure Given Below Shows the Demand [D and D']