1-4 1-5 1-6 When is a stock said to be in equilibrium? At any given time, would you guess that most stocks are in equilibrium as you defined it? Explain. Suppose three honest individuals gave you their estimates of Stock X's intrinsic value. One person is your current roommate, the second person is a professional security analyst with an excellent reputation on Wall Street, and the third person is Company X's CFO, if the three estimates differed, in which one would you have the most confidence? Why? Is it better for a firm's actual stock price in the market to be under, over, or equal to its in- trinsic value? Would your answer be the same from the standpoints of stockholders in gen- eral and a CEO who is about to exercise a million dollars in options and then retire? Explain. If a company's board of directors wants management to maximize shareholder wealth should the CEO's compensation be set as a fixed dollar amount, or should the compensa- tion depend on how well the firm performs? If it is to be based on performance, how should performance be measured? Would it be easier to measure performance by the growth rate in reported profits or the growth rate in the stock's intrinsic value? Which would be the better performance measure? Why? 1-7