Each of the following events will affect the stock of the company involved. For

Question

Each of the following events will affect the stock of the company involved. For each company, please predict the effect on the demand of its stock shares, as well as on its stock price. Assume that nothing else changes Demand Will. Price Will Ford Motor Company announces that it will have to decrease profit expectations for the current year, as an increase in gas prices has led many people to hold off on buying a new car Due to a successful advertising campaign using the 'Pepsi Challenge', PepsiCo announces that sales of its signature soft drink are higher than expected On the same day you buy a share of Google Inc. stock, the U.S. Government announces an increase in interest rates, making bonds a more attractive option for investors Starbucks Coffee Company informs the public that profits this year are larger than previously icted, due to its expansion into the retail cream and chocolate businesses increasedecrease no change

Explanation / Answer

1) Since profit expectations are decreasing this will lead to lower demand for its stock shares . People will not be willing to buy shares of such a company whose profits are likely to fall in future . So price of stock will also fall .

2) Pepsico is making large profits due to its new endeavour , this helps generate confidence of investors on the company . People buy more stocks of this company since they know that in future if the company grows further stck prices will rise further or the profit shall be distributed among share holders . So demand for stocks will rise and also price will rise .

3) Demand for stocks is likely to fall for all companies since bonds are safer modes of investment . So investors will partly invest their money in bonds . Prices of stocks will decrease .

4) Demand for stocks increases , price of stocks increases .

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