If all relevant information about a stock is reflected in its price, what is that price called?

The correct option is this Market price.

In Finance MCQs, understanding stock valuation and pricing mechanisms is essential for mastering capital market concepts. The market price of a stock is the price at which it is currently trading in the stock market. This price is determined by the interaction of demand and supply between buyers and sellers. More importantly, in financial theory, the market price reflects all available and relevant information about the company at a given time. This includes financial statements, earnings reports, economic conditions, industry performance, investor expectations, and even global market trends.

One of the key theories supporting this concept is the Efficient Market Hypothesis (EMH). According to EMH, in an efficient market, stock prices fully incorporate all publicly available information. This means that it is nearly impossible to consistently achieve abnormal profits because the market price already reflects everything that is known about the stock. In finance MCQs, when a question asks which price reflects all relevant information, the correct answer is always market price because it represents the consensus value agreed upon by market participants.

It is important to distinguish market price from intrinsic price. Intrinsic price, also known as intrinsic value, is the theoretical or estimated value of a stock calculated through fundamental analysis. Analysts may use tools such as discounted cash flow (DCF) models, earnings forecasts, or growth projections to determine intrinsic value. However, intrinsic value is subjective and can vary from one analyst to another. The market price, on the other hand, is objective because it is the actual price at which the stock trades in the open market.

Another incorrect option is extrinsic price. This term is mainly used in options trading and refers to the portion of an option’s premium that exceeds its intrinsic value. Extrinsic price depends on factors such as time to expiration and market volatility. It does not describe the price of a stock that reflects all available information.

Similarly, unstable price refers to volatility or unpredictable price movements. A stock may be volatile, but that does not necessarily mean it fails to reflect available information. Even rapidly changing prices can still represent updated information being absorbed by the market.

The concept of market price is highly significant in finance and investing. Investors rely on market price to make buy, sell, or hold decisions. Since the price reflects the collective expectations and analysis of thousands of investors, it serves as a practical benchmark for valuation. Market price also ensures liquidity in the stock market, allowing smooth transactions between buyers and sellers.

Additionally, companies monitor their market price to evaluate shareholder wealth. A rising market price often indicates strong investor confidence and positive financial performance. Analysts also compare market price with intrinsic value to identify overvalued or undervalued stocks, a common concept tested in finance MCQs.

Understanding market price also helps students grasp the broader concept of market efficiency. In an efficient market, prices adjust quickly to new information. Therefore, recognizing that market price reflects all relevant information is crucial for answering theoretical and practical finance MCQs correctly.

In conclusion, when all relevant information about a stock is incorporated into its trading value, that value is known as the market price. It represents the real-time consensus of market participants and is central to stock valuation theory. Therefore, in finance MCQs, the correct answer is Market price.