Los 46.a

Question 1

What do analysts need to consider when deciding whether to invest based on differences between market prices and intrinsic values?

Answer 1

1. The large the percentage difference between market value and estimated prices
2. Confidence in the appropriateness of valuation model
3. Confidence in inputs used and of the level of sensitivity
4. Investors must consider why a stock is mispriced in the market
5. An investor must believe that the market price will actually move towards it’s intrinsic value within the investment time horizon