The document discusses how stock prices are discovered in the market based on a company's earnings per share and market demand and sentiment. It provides an example of how an initial stock price of Rs. 100 per share could increase to Rs. 1200 per share if the company's earnings per share rises from Rs. 10 to Rs. 100 due to increased demand for the company's products, causing the price-to-earnings ratio to rise from 10 to 12. This demonstrates how both earnings and market demand factor into a stock's market price.

1. Understanding Price Discovery in the Stock Market 瞭解股票市場股票的價格是如何被發現的 How does price discovery take place in the stock market? 發現股票市場的股票價格是如何產生的

3. Since P/E = 10, it means a buyer, Mr. Pickle is willing to pay 10 times the company’s annual earnings per share! 本益比為 10 ，表示投資者願意投資比公司每年盈餘多 10 倍價格

4. This means that the buyer would take 10 years to recover his cost of buying. 這表示投資人需要花 10 年的時間才能回收他投資的金額

5. However 10 yrs seems a long time to recover his investment. So what’s his motivation for investing? 然而 10 年才能回收投資的金額，所需時間似乎太長，那麼究竟是什麼因素驅使他投資？

6. Let’s say there is a surge in the demand for the company’s product causing its profits to go up from Rs 1,000 to Rs 10,000! 假設該公司的商品需求量突然大增，使公司獲利自 1000 盧比增加為 10,000 盧比

7. Now what’s interesting to observe is that while the profit went up from Rs 1000 to Rs 10,000 the number of shares remains the same at 100. Hence, by definition, earnings per share would be Rs.100. 有趣的事情是雖然公司利潤從 1000 盧比增為 10,000 盧比，但是仍然只有 100 股股票。因此根據剛剛的算式，每股盈餘成為 100 盧比

8. Since Mr. Pickle invested Rs 100 for a share whose EPS has increased from Rs 10 to Rs 100, he is now able to recover his investment within a year. 當投資者擁有 100 盧比一股的股票，每股盈餘將從 10 盧比變為 100 盧比，現在他只需要 1 年就可以將投入的資金回收

9. Assuming the P/E remains at was 10 and earnings per share has gone up to Rs 100, the price of the share would then be Rs. 1000. 假設本益比仍保持 10 ，而每股盈餘升為 100 盧比，那麼股價應為 1000 盧比

10. Hence Mr Pickle who paid Rs 100 per share could sell the same for Rs 1000 and make a profit of Rs 900. 那麼花了 100 盧比購買股票的投資人，可以以 1000 盧筆的價格售出股票，獲利 900 盧比 But the story does not end here. 但故事還未結束

11. When people see that a company, which was making Rs 10 per share sometime back, is now making Rs 100 per share, they all want to buy the shares of this company and thus the demand shoots up! 當其他人發現投資人購買這家公司股票時每股盈餘從 10 盧比變成每股 100 盧比，使大家都想購買這家公司的股票

12. And this demand causes the P/E to go up from 10 to let’s say 12. 這就使本益比上升，假設從 10 上升至 12

13. When the P/E moves up from 10 to 12, the market price of the shares too move up to Rs 1200 from 1000. 當本益比自 10 上升至 12 ，股票市值也自 1000 盧比升為 1200 盧比

14. Now Mr. Pickle, who had initially bought a share for Rs 100, can now sell the same for Rs 1200 and make a profit of Rs 1100! 最初以 100 盧比購買股票的投資人，現在可以以 1200 盧比的價格售出股票，獲利 1100 盧比

15. Thus we have seen how the price of a share is discovered in the market. It is a function of both the earnings per share which is the profitability of the company as well as the sentiments, expectations of the market causing demand to rise which increases the P/E ratio! 如此我們可以知道市場上股票價格是如何被發現的。股票價格發現受兩個作用影響，一是每股盈餘的獲利，二是對於大眾情緒的影響，對公司未來抱持期待，會使股票需求上升，並使本益比上升

16. Hopefully you’ve now understood the conceptual interpretation of the P/E ratio and how it changes depending on earnings of the company at one hand and demand on the other! 希望你已經能夠瞭解本益比的概念，並且知道它會因公司的獲利以及民眾的需求而改變

17. I will be glad to receive your feedback on this lesson to understand if there any gaps. Your feedback will help me improve my lessons going forward. Also if you wish to demystify any other concepts, do write to me about them. Please send your feedback to [email_address]