BIGCO Corporation is one of the major components of the INDX stock index, and large numbers of shares of BIGCO are included in index funds tracking INDX (these are funds set up so that investors can easily invest in the entire stock market at once, rather than in individual stocks). A major crisis hits the market, negatively impacting the growth prospects of many firms listed on INDX.

BIGCO however, was well insured against this possibility, and is expected to easily weather the crisis with no impact to its projected dividend growth rate. Despite this, when the crisis hits, investors holding index funds tracking INDX want to sell, since the overall market is negatively affected. This means that BIGCO stocks will be sold too, as a part of the index funds. The price of BIGCO stock falls. 

Explain what you think will happen to BIGCO's stock price over time?

Answer rating: 100% (QA)

In the shortterm the stock price of BIGCO is likely to experience a significan... View the full answer