Asked by karyme catano on May 02, 2024
Verified
According to James Tobin, the long-run value of Tobin's Q should move toward
A) 0.
B) 1.
C) 2.
D) infinity.
E) None of the options are correct.
Tobin's Q
A ratio comparing the market value of a company's assets to their replacement cost, often used to assess if a company is under or overvalued.
James Tobin
An American economist known for his work on the links between financial markets and economic decisions, especially the Tobin tax concept.
Long-run Value
The intrinsic value of an asset or company based on fundamental analysis, considering its potential for growth and profitability over an extended period.
- Grasp the significance of Tobin's Q and its long-run implications.
Verified Answer
IC
Irene CanosaMay 05, 2024
Final Answer :
B
Explanation :
According to James Tobin, the long-run value of Tobin's Q should move toward 1. Tobin's Q is a ratio comparing the market value of a company to the replacement value of its assets. A Q value of 1 suggests that the market value and replacement value are equal, indicating an equilibrium state that the market would naturally gravitate towards over the long run.
Learning Objectives
- Grasp the significance of Tobin's Q and its long-run implications.