ACCA Advanced Financial Management (AFM) Practice Exam

What is a primary reason for a company to maintain its stock price within an optimal range?

1. To attract institutional investors

2. To prepare for an acquisition

3. To enhance market capitalization

4. To prevent stock dilution

The correct answer is: To attract institutional investors

Maintaining a company's stock price within an optimal range is crucial for attracting institutional investors. These investors often have large amounts of capital that they can allocate, and they typically prefer stocks that exhibit stability and predictable performance. A stable stock price can serve as an indication of a company's robustness, financial health, and long-term viability. Institutional investors are also more likely to invest in companies with a consistent trading history, which can be reflected in a price range that indicates low volatility. This alignment between stock price and investor perception can fundamentally support the company's funding and growth strategies, making it a significant factor in strategic financial management.