Answer to Question #10807 in Finance for saima

Question

The Case:

Prices of common stock of Cement Manufacturing Association (CMA) are increasing on daily basis. New investors are more enthusiastic in purchasing the CMA’s stock due to the belief that the company’s stock prices will tend to increase more in the days to come. Hence, at present the investment in this stock will be very beneficial for them. So, with the expectation to sell this stock at higher prices in the future could give them huge gain. However, the market analysts keeping an eye on the fundamental value of CMA’s stock are of the view that the stock prices of the company are overvalued, thus not representing their true values. According to these analysts, this stock will not be able to maintain its current trend of price increase in the future and will be forced by the market mechanism to adjust its price to its fundamental value.



Requirement:

Considering the above scenario, do you agree that this price hike is beneficial for the country’s economy in general and for the investors in particular? Support your answer with logical reason.