If a share of stock is correctly valued today, a bubble in the stock market is when you purchase a stock because
A) you expect future dividends to rise.
B) you expect interest rates to fall.
C) you expect other people will be willing to pay more for the stock in the future.
D) you expect interest rates to rise.

Question

Quizplus · Accepted Answer

A bubble in the stock market occurs when the price of a stock is significantly higher than its intrinsic value due to speculation and irrational exuberance. People purchase the stock because they believe they can sell it to someone else at an even higher price in the future, rather than based on the stock's actual value or expected future dividends. Therefore, the correct choice is C.

If a Share of Stock Is Correctly Valued Today, a Bubble