Question

The intrinsic value of a company's stock, also known as its fundamental value, refers to the stock's "true" value based on accurate risk and return data. The value perceived by stock market investors determines the market price of a stock. A stock trading at a price below its intrinsic value is considered to be undervalued. A stock trading at a price above its intrinsic value is considered to be overvalued. The goal of the managers of a publicly owned company should be to maximize the firm's An analyst with a leading investment bank tracks the stock of Mandalays Inc. According to her estimations, the value of Mandalays Inc.'s stock should be $37.32 per share, but Mandalays Inc.'s stock is trading at $45.59 per share on the New York Stock Exchange (NYSE). Considering the analyst's expectations, the stock is currently: in equilibrium undervalued overvalued The following graph shows a stock's actual market price and intrinsic value over time. The intrinsic value comes from another research analyst. Use the dropdown menus to label the periods in which the stock was undervalued or overvalued. Actual Stock Price Intrinsic Value Stock Price and Intrinsic Value ($) 2013 2014 2015 2016 2017 2018 Years

Answer 1

1. The goal of the managers of publically owned company should be to maximize firm's percieved value (if this is the option in drop down)

2. As the share is trading in the market at a price more than the estimated value (it represents the intrinsic value). Thus the stock is overvalued

3. Actual stock price is represented by orange curve and intrinsic value is represented by blue curve.

For area labelled as A, the actual stock price is more than intrinsic value thus stock is overvalued. E.g. in year 2017 actual stock price is $29 which is higher than intrinsic value is $. Thus stock is overvalued.

For area labelled as B, the actual stock price is less than the intrinsic value thus during this period stock is undervalued. E.g. in 2014, actual stock price $22 is less than stock intrinsic value $25. Thus stock is undervalued