Business Valuations (4)

Question 1

What is meant by marketability and liquidity of shares?

Answer 1

How easy it is to find a buyer for a share and how liquid a share is will influence the value of a share

Question 2

Shares of a large company vs small company

Answer 2

Shares of a larger company are easier to sell and have a higher value

Small companies are vice versa

Question 3

What happens when investors are unable to botain accurate information?

Answer 3

Leads to drop in value of a share as they react adversely to uncertainty

Question 4

What supports the view of irrationally often drives the stock market?

Answer 4

Share prices falling at particular times of the week

High returns often occurring in particular months

Question 5

Fundamental concept of market capitalisation?

Answer 5

Return from investing in smaller companies has been shown to be greater than average return from all companies in the long run

Question 6

What may the increased return from smaller companies compensate?

Answer 6

The greater risk associated with smaller companies

Question 7

What is herding?

Answer 7

Investors follow trends irrationally

Question 8

What is loss-aversion?

Answer 8

Investors place undue emphasis on avoiding short-term losses even if long-term performance looks strong