- June 25, 2022 at 3:26 pm #659281Eunice03Participant
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18.9 Which of the following is correct concerning the market value of a company’s shares?
? Market value must be greater than nominal value
? Market value must be lower than nominal value
? Market value equals nominal value
? Market value may be equal to, greater or lower than nominal value
ANS-Market value may be equal to, greater or lower than nominal value
Good day sir,I don’t understand why the correct answer is D since it is written in the notes that shares cannot be issued at less than its nominal value.I’ll appreciate if you can explain better.June 25, 2022 at 4:04 pm #659284MikeLittleKeymaster
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The issue price of a share is NOT the same as the market value. Market value is determined by market forces of people buying and selling shares through the stock exchange
Where the public (ie the market) believes that a company is going to perform in the future beyond general expectations, then the public could well buy some shares of that company on the stock exchange and then hope that the company does in fact out-perform general expectations.
As the company leaks news about its activities, the market value of its shares could increase (as even more people want to join in the company’s success and hope that the market price will continue to increase) or the market value could decrease where the market thinks that the company is performing below expectations so existing shareholders will try to sell before the market price falls too much
So the market value of a company’s shares is a volatile unknown and is affected by the gambling minds of people buying and selling the company’s share son the stock exchange
And none of what I have written is in any way related to the nominal value of that company’s share capital
So market value
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