There are 2 main components to the value or prevailing price of a stock:
1. The Par value. By par value, it means the value of the company based on its current assets and its income ability right now. It is the raw value of a company factored into the individual share prices. Usually, this is a minor component of a stock value. It is like a bottle of coke costs $1 at par value.
2. The Perceived Value. By perceived value, it means that on top of the par value of the stock, people think it is worth more than that and continues to buy the share at higher and higher prices up to where they think it should be worth... this is usually much much higher than the par value. This is like that same bottle of coke selling at $3 at a major league game.
There is no real way to calculate the par value of a stock and the only emphirical measure of the par value of a stock is by the exchange on the very moment it is announced to be listed. The moment the stock goes on list, it is immediately affected by the percieved value and usually soars skyhigh on its first listing day. After that, its par value has very little significance as the value of the stock continues to soar or drop based on the way people see it.
Hope this helps.
http://www.optiontradingpedia.com
http://www.mastersoequity.com
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2006-12-04 14:59:29
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answer #1
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answered by Anonymous
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The sole factor is the perceived value by the potential purchaser.
If no one thinks your share of stock is worth more than $2, then it doesn't matter what the P/E is, what the book value is, what the projected cash flow is...
Study the Tulip Bulb Bubble in the Netherlands in the late 15th Century (maybe 16th).
2006-12-04 12:58:07
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answer #2
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answered by TheSlayor 5
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The monetory value of the stock is determined from the capital asset pricing model(CAPM) return on equity or Ks. The dividend discount model tells that the monetory value is determined by the dividends, the growth rate, and return on equity.
The real value of a stock depends also on what values it provide the stock holders.
2006-12-06 04:32:24
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answer #3
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answered by Mathew C 5
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herd behavior
if many people think its worth something for whatever strange reason
things like PE ratio and Book Value make more sense
2006-12-04 12:52:52
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answer #4
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answered by Anonymous
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http://matt12345.17.forumer.com/index.php
Check out my forum
for more answers
2006-12-04 12:50:45
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answer #5
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answered by matt f 1
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