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Q:

How do you calculate share prices in a company?

A:

The price of a share of stock is not calculated so much as it is determined by the amount investors are willing to pay on any given day. According to About.com, the market opens each day with a clean slate. It is possible for stocks to sell for the same price as the day before, to sell for a fraction of their previous value, or to increase greatly in value.

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There are many things that affect the value investors put on a stock. For example, About.com indicates that a war which limits a company's access to the materials that it needs to make its products is going to affect its stock prices. New discoveries for uses of a product also affect what investors pay as demand for the product increases. A company's internal affairs also affect stock prices, such as an upheaval in leadership or actions that tarnish the company's image in public opinion.

The dot-com bubble burst of 2000 shows the volatility of the stock market. CNN Money uses Pets.com to demonstrate this problem. On its opening day in February of 2000, Pets.com offered stocks at \$11 per share. Prices increased rapidly to \$14 per share. However, its business model was not sustainable, and the company lost \$147 million between January and August of the same year. Stocks plummeted to less than \$1 per share before the company folded in November of 2000.

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Related Questions

• A:

Stock options allow employees to purchase a specified number of shares of the company's stock at a specified price during a certain period of time. A study from the National Center for Employee Ownership states that in 2010, 36 percent of employees owned some type of stock in their companies.

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Opening stock refers to the price per stock that are available for a company at the beginning of an accounting period. The accounting period timing is set per company and is reported on a quarterly basis.

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An investor in the stock market typically makes money when a stock he owns increases in price and when a company whose stocks he is holding issues a dividend. When a stock price rises, the investor only makes money if he sells the stock; otherwise, he remains with unrealized gains. A stock price typically increases because other investors believe it has a higher value than its current price.