How the price of an equity share is determined?



Suppose an equity share has a face value of Rs. 10. But, in stock market it is priced at Rs 200. Can anybody technically explain how a share price is calculated? It is very simplified to say that it is determined by demand and supply.

How the price of an equity share is determined?
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4 Replies to “How the price of an equity share is determined?”

  1. RSI = 100 – [100/(1 + RS)]
    where:
    RS = (Avg. of n-day up closes)/(Avg. of n-day down closes)
    n= days (most analysts use 9 – 15 day RSI)

    Day High + Day Low + Close
    Average Price =
    3

    Money Flow = Average Price x Day’s Volume

    Positive Money Flow
    Money Flow
    Ratio =
    Negative Money Flow


  2. Share value is influenced by a number of factors, a main one being a company’s earnings, growth rate, industry, etc. It is of course somewhat speculative.
    If 1000 people collectively invested 10 rupees each and started business. After many years the business has grown up.At present this business has a value of 2lakh.
    i.e., each persons 10 rupees now become 200 rupees value. now some one who invested earlier likes to sell his 10 rupees share. so somebody will buy it at 200 rupees.
    Initial share price 10 rupees is face value.
    Now 200 rupees is market value.

    Stock price is only a price at which traders will buy or sell.Most stocks are held by long-term investors, LIC, pension funds and mutual funds.Future demand comes when stock options are exercised by company management or from convertible bonds that turn from bond status into shares of stock under certain circumstances. During better economic times, most companies first issue debt. When the stock price rises , the companies discharge the debt by calling it back. When mutual funds face redemption, stock is sold by AMC to pay for it. It is not uncommon for stocks to be undervalued at market bottoms well beyond any intrinsic value. On a daily basis stocks are traded with a constant elegant feeling of earnings potential.
    Through BSEIndia Live a trader can make certain strategies on how to invest, when to invest, in which scrip to invest and what is going to be the future of the market.


  3. Check out this article on Wikipedia:

    http://en.wikipedia.org/wiki/Sum_of_Perpetuities_Method

    Basically investors care about how much a company earns, how much it pays in dividends, and how fast the company is growing. These are the key drivers of a stock’s long term value and long term performance. Bear in mind though that daytraders don’t care about these factors – they only care about whether the stock is going up or down tomorrow. Daytraders can cause a stock’s price to vary a lot from its long term fair value.


  4. Cost of equity share capital is that part of cost of capital which is payable to equity shareholder. Every shareholder gets shares for getting return on it. So, for company point of view, it will be cost and company must earn more than cost of equity capital in order to leave unaffected the market value of its shares.





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