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

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BlackTom AI · Accepted Answer

Let’s break down the question and each answer choice in turn to understand what the text argues about stock valuation.
Option 1: 'Equity will likely be a large portion of your investment portfolio and retirement fund.' This is a plausible reason to care about stock valuation, since many people hold substantial equity exposure and valuing stocks helps manage risk, diversification, and expected returns in a long-term plan.
Option 2: 'Many compensation packages in corporate America include stock options.' Stock options are a common form of compensation, so understanding stock valuation can influence decisions related to accepting offers, evaluating total compensation, and planning liquidity or diversification around those options.
Option 3: 'You need to know how to time the market if you ever want to invest successfully.' This statement asserts that market timing is essential for success. In most financial literature, market timing is discouraged as unreliable for the average investor; valuation skills are typically framed around fundamentals, risk, and long-term trends rather than precise timing. This makes the claim questionable as a universal reason to care about stock valuation.
Option 4: 'A&B' combines the reasons in options 1 and 2, implying both are correct. Since both the equity exposure reason and the stock-option compensation reason are valid considerations for caring about stock valuation, this option aligns with the combined argument.
Option 5: 'All of the above' would require that all listed reasons are valid. Because option 3 is generally considered not a reliable or recommended basis for valuing stocks, this 'All of the above' choice is not accurate in typical valuation guidance.
In summary, options 1 and 2 present solid, text-supported reasons to care about stock valuation, option 3 presents a contested stance on market timing, option 4 presents the combination of valid reasons, and option 5 overstates by including a disputable point. The reasoning supports focusing on the validity of 1 and 2 while treating 3 as less defensible within standard valuation discussions.

MSB-250-300-002 Proctored Midcourse Exam 2

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

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