In the secondary market, the prices of securities are determined by ________.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → demand and supply for the security
Option (1) the face value of the security — Incorrect. Face value is the value printed on a unit, such as Rs 10 or Rs 100. It stays the same, so it cannot set the day-to-day trading price.
Option (2) demand and supply for the security — Correct. On the stock exchange, buyers and sellers meet all the time. Share prices are set by the forces of demand and supply, so the exchange values securities constantly.
Option (3) the dividend declared by the company — Incorrect. A dividend is the share of profit paid to shareholders. It is a return on the share; the trading price comes from buyers and sellers.
Option (4) the issue price fixed by the company — Incorrect. The issue price is decided by the management of the company when new securities are sold in the primary market.
NCERT (Pre-rationalised Edition): “2. Pricing of Securities: Share prices on a stock exchange are determined by the forces of demand and supply. A stock exchange is a mechanism of constant valuation through which the prices of securities are determined. Such a valuation provides important instant information to both buyers and sellers in the market.”
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