A firm's stock price is equal to:
A) current revenues divided by the number of stocks being traded.
B) the present value of all past earnings.
C) zero, in the long run.
D) current and expected future accounting profits.
E) economic plus accounting profits, times the real interest rate.

Question

Quizplus · Accepted Answer

A firm's stock price reflects its current and expected future accounting profits. Investors buy stocks in the hopes of earning a return on their investment through increased future profits or dividends. Therefore, the stock price is based on the profitability of the firm, which is reflected in its accounting profits.

A Firm's Stock Price Is Equal To