What is a firm’s intrinsic value? Its current stock price? Is the stock’s “true” long-run value more closely related to its intrinsic value or to its current price?
To identify: The firm’s intrinsic value, current stock price and the relation of the stock’s “true” long run value with intrinsic value and its current price.
Intrinsic Value: An estimated value of the stock which can be determined considering on the exact risk and return. The intrinsic value can be predictable but not measured accurately. The intrinsic value can be calculated by professional analyst on the basis of the data provided by the company.
Therefore, intrinsic value is the estimated value of stock closely related with the stock’s “true” long run value and the current stock price is actual price of the stock.