Assume that your valuations lead to an estimated share price of $39.80. Quizzer’s actual current share price is $37.90. Would you recommend buying or selling shares in Quizzer?

Question

BlackTom AI · Accepted Answer

The question asks whether to buy or sell based on valuation versus current price. 
Option 1 (A. Buy): The estimated fair value is $39.80 while the actual market price is $37.90. Since the estimated price exceeds the current price, the stock appears undervalued, suggesting buying to gain from a potential price rise to the estimated value. This aligns with value investing intuition: buy when intrinsic value exceeds market price.
Option 2 (B. Sell): Selling would be the opposite move if you believe the price should rise to its intrinsic value. However, with a current price below the estimated value, selling would lock in a loss or miss a potential upside, making this choice inconsistent with the given valuation.
A useful check is to consider the simple relation: if estimated value > market price, buying is warranted to capture potential appreciation; if estimated value < market price, selling or avoiding the stock would be more reasonable. Misreading this relationship leads to an incorrect action.
In summary, the undervaluation signal supports a Buy recommendation, while the Sell option contradicts the valuation insight provided by the numbers.

ACCT10001_2025_SM2 Exam: Accounting Reports and Analysis (ACCT10001_2025_SM2)- Requires Respondus LockDown Browser

Assume that your valuations lead to an estimated share price of $39.80. Quizzer’s actual current share price is $37.90. Would you recommend buying or selling shares in Quizzer?

View Explanation

Log in for full answers

Similar Questions

Which of the following are reasons that you should care about stock valuation (according to the text)?

If the current risk free-rate is 6%, what should the current price of a stock be if its price and dividend next year are forecast to be $122 and $7, respectively, and its risk premium is 4%.

Part 1Compute the price of a share of stock that pays a $5.005.00 per year dividend and that you expect to be able to sell in one year for $3030, assuming you require a 1010% return. The price of the share is $[input]enter your response here . (Round your response to the nearest penny.)

Select the correct alternative regarding stock valuation:

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler