Visit the New York Stock Exchange http://www.nyse.com/pdfs/nyse_chap_04.pdf \"Ch
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Visit the New York Stock Exchange http://www.nyse.com/pdfs/nyse_chap_04.pdf "Chapter 4: Market Cycles: What Drives Stock Prices?" Q1) What are some of the reasons given to explain the fluctuations in stock prices? Q2) According to our textbook, demand and supply changes caused by a change in the determinants of demand and the determinants of supply should explain changes in the price of a stock. Are these ever mentioned? Explain. Q3) How would you compare the events of September 11, 2001 to those reasons listed? Q4) What is the difference between a "bull market" and a "bear market"?Explanation / Answer
Q1) The stock market is essentially a giant auction - only instead of antiques and heirlooms, it's ownership in businesses that's up for grabs. Stocks are traded at places called exchanges. At these exchanges, traders buy and sell shares of companies. Generally, the price of a stock is determined by supply and demand. For example, if there are more people wanting to buy a stock than to sell it, the price will be driven up because those shares are rarer and people will pay a higher price for them. On the other hand, if there are a lot of shares for sale and no one is interested in buying them, the price will quickly fall. Because of this, the market can appear to fluctuate widely. Even if there is nothing wrong with a company, a large shareholder who is trying to sell millions of shares at a time can drive the price of the stock down, simply because there are not enough people interested in buying the stock he is trying to sell. Because there is no real demand for the company he is selling, he is forced to accept a lower price.
Q2)Supply and demand explains why individual stock prices fluctuate. But how do investors decide whether it is a good idea to
buy or sell a particular stock at a given price? First, they need
to consider the financial health of the company whose stock
they are considering buying or selling. If it looks like a company is going to lose money
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