Question

3. Consumers are caught up in a craze over a new product put out by Caliente Company. People are snapping up Caliente Company's stock even though it is overvalued. Last month, sales of Caliente's stock peaked, and now investors are starting to sell off their stocks. Is the price of Caliente Company's stock likely to rise or fall? Explain your prediction.

Answer 1

If a company is doing well, more people are going to want to have a piece of the pie (profits/earnings). This will lead them to buy stock. If more people want to buy stock, then the price of that stock will go up since there are many people interested in buying stock and the stock is limited. Once stockholders are selling their stock, the price of the stock will go down. The supply went up and usually when supply goes up, price goes down.