Suppose you predicted that Facebook shares would double within the next two months, due to their...

Suppose you predicted that Facebook shares would double within the next two months, due to their past year’s performance and their recent market expansion plan. However, you missed the news yesterday, which stated that there would be a Senate inquiry into Facebook for its data handling. Is your prediction of Facebook share price rational? Why or why not?

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Expert Solution

No, My prediction for share price of Facebook about doubling of them in next 2 months is completely irrational because Facebook is having a very high market capitalisation, and until and unless there is a complete a structural change in the technology and data industry, it will mean that it is not a true prediction because this is a highly optimistic production as share prices doubling of such a larger base company is not easily interpreted in the short run.

When the senate has ordered an enquiry for operation of the Facebook, it will mean that, that is a negative for prices of the Facebook and it is suffering from the accusation of data leakes, and hence it will lead to correction in the share price of the Facebook and it will not be leading to increasing of the price of the Facebook so my prediction will again get hit by ordering of enquiry by senate and hence it will be leading to correction on the prices of the Facebook and hence it can be said that my prediction is not true regarding doubling of prices of Facebook.

I do not think that this prediction is rational as this is done for such a larger based company which is already an established company and growth for such company is very low as well as there is a high level of competition in the data market, so my prediction is completely irrational in nature

jeff jeffy answered 1 year ago

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