Discuss intrinsic value of stock and market value of stock. Discuss when they in and out...

Discuss intrinsic value of stock and market value of stock. Discuss when they in and out of equilibrium

Expert Solution

Intrinsic value refers to the value of stock which has been determined through fundamental analysis without reference to its market value. This is calculated as the sum of the discounted cash flows expected from the stock. The future income of the stock is discounted at a predetermined discount rate to arrive at the intrinsic value or the genuine value of the stock.

Market value on the other hand refers to the market price of the stock in the stock exchange. This is a price at which the stock is traded and depends upon the demand and supply. Generally, it refers to the intrinsic value due to which the stock may be underpriced or overpriced. Market value of the stock is driven by public expectations and opinions about the company. It also depends upon the capacity of investors to invest considering the current market position. Intrinsic value is driven by internal conditions and performance and hence the two are generally different.

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