Say whether each of the following events would likely cause the price of Google
ID: 1213868 • Letter: S
Question
Say whether each of the following events would likely cause the price of Google stock to go up, go down, or not change:
a. A competitor launches a search engine that’s better than Google’s.
b. The corporate income tax rate is significantly reduced.
c. Google’s board of directors becomes dominated by close friends and relatives of its top management.
d. The price of wireless Internet connections unexpectedly drops, so more and more people use the Internet.
e. Google announces a profit of $10 billion, matching analysts’ expectations.
Explanation / Answer
a. A competitor launches a search engine that’s better than Google’s: [Price of the stock will go down, as investors will find worth in the competitors search engine and will want to invest in the same company].
b. The corporate income tax rate is significantly reduced: [Prices are indifferent to this hence will not change].
c. Google’s board of directors becomes dominated by close friends and relatives of its top management: [Prices will tend to go down as the investors will perceive the company as run by relatives and friends in their whims and fancies rather than professionally run firm].
d. The price of wireless Internet connections unexpectedly drops, so more and more people use the Internet: [Price will increase or rise as demand increases].
e. Google announces a profit of $10 billion, matching analysts’ expectations: [Prices will increase].