Question

The price that investors are willing to pay for a firm's securities can best be described by which of the following statements?

	a.	If a company is performing poorly, investors will not buy that company's securities.
	b.	If a company is performing well, investors will buy the company's stock at almost any price because the price of the stock should increase.
	c.	Since the value of a company's securities depends largely on future cash flows, investors will consider the company's performance in estimating the future cash flows that will come from owning its securities.
	d.	Since risk is difficult to assess for any company, investors don't usually consider risk when deciding how much to pay for a company's securities.

Answer 1

Since the value of a company's securities depends largely on future cash flows, investors will consider the company's performance in estimating the future cash flows that will come from owning its securities.

Explanation:

Investors will consider current price of security and firm's expected future prospects to consider the decision of buying the stock,

Intrinsic Value of Stock = D(1 + g)/(r - g)

Intrinsic Value is the fair market value of the stock depending on it's future dividend growth rate.