Factors Affecting the Market Prices of Common Stocks
Each of the following situations describes an event that affected the stock market price of a particular company.
a. The price of a common share of McDonnell Douglas, Inc., increased by over $5 per share in the several days after it was announced that Saudia Airlines would order $6 billion of commercial airliners from Boeing and McDonnell Douglas.
b. Citicorp’ s common stock price fell by over $3.50 per share shortly after the Federal Reserve Board increased the discount rate by 1/4 percent. The discount rate is the rate charged to banks for short-term loans they need to meet their reserve requirements,
c. The price of a common share of Ventitex, Inc., a manufacturer of medical devices, fell over $10 (27.7 percent) after it was announced that representatives of the Federal Drug Administration paid a visit to the company.
Instructions
For each of the independent situations described, explain the likely underlying rationale for the change in market price of the stock.
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