Question

One Criticism of the stock market is that companies have pumped up their stock prices by a strategy called

a) Stock buy-back

b) Stock Selling

c) Stock Buyout

d)Stock buy and hold

Answer 1

Option (a) : Stock buy-back

Explanation:

~ Stock buy-back basically means buying back of the already issued stock from the market , by the company.

~ It increases their stock prices due to following two reasons:

(1) it creates a temporary demand of the stock in the market which leads to increase in the stock price.

(2) buy-backs leads to an increased EPS as the shareholders gets reduced. Due to increased EPS, the stock becomes more attractive in the market, leading to a higher price.