Question

Which of the following describes stock speculation?
a. Speculation is a theory that if enough people buy stock on credit, the market will continue to rise.
b. Speculation is a gamble that the price of a stock will increase and an investor will make money.
c. Speculation is a belief that the price of a stock is based on reality and an investor risks no loss.
d. Speculation is a review of stock prices to determine whether they accurately reflect the value of a stock.

Answer 1

Speculation is the gamble that the price of a stock will increase based on projections provided by the company or economists. The issue with speculation is often projections are incorrect or inflated and if anything were occur to the economy, the stock will quickly decline creating a crash. The 1920s speculation was especially dangerous as people bought stock on credit in hopes of making a profit and paying back the creditor. When the crash occurred not only did individuals lose money but so did creditors. 

Answer 2

d. Speculation is a review of stock prices to determine whether they accurately reflect the value of a stock.