Question

A company overvalues its shares by 25 percent. If the quoted price of a share is $300, what is the true and fair price of the share?

Answer 1

From the information given, the shares are overpriced by 25%, therefore the shares stand at 125%

We need to find out the price value of 1% share.

125% = 300$

1% =  x    (where x is the value in dollars of 1% shares)

Simplify the above equation by cross multiplying , so:

125 × x = 300 ×1

125 x = 300

x = 300/125

x= 2.4 $

1% share  price is 2.4 dollars. How about the true share price? The true share price is at 100%

100% share price value is 2.4 × 100 = 240

Therefore the true and fair price of the shares is $ 240