Question

Tony is an analyst covering BHP, one of the biggest companies in the ASX, while Kate is an analyst covering CTM, a very small, and relatively unknown company also listed in the ASX. Explain who is more likely to uncover mispricing, and why. What will be the risk associated with investing in BHP or CTM?

Answer 1

Here , the company or the BHP is more likely to uncover mispricing. and the kates company which is CTM is less likely to uncover mispricing. which means the BHP company is having more chance of risk , and the company CTM is having less chance of risk when pricing.

The big company is always having more risk. as the company getting big , the chance of risk also increases.Here the BHP is one of the biggest company in the American Securities EXchange. and the CTM company relatively unknown company also listed in the American Securities Exchange. So the risk of CTM company is also will be relatively less. there are certain factors that affects the risk of pricing in securities exchange. The main factor of reisk in pricing is th Determination of price .

Determination of the Price :

The price is determined in market by forces of demand and supply as just like in the economic market itself. as the number of buyers and sellers of BHP company would be high. the risk of mispricing also woulld get bigger. and the number of buyers and suppliers of CTM company would be less because, it is a small and relatively unknown company so the risk of mispricing also would be less.