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Purchase Prices

Q: When a company buys another company, does the acquiree’s stock price always go up? — H.W., Salisbury, Maryland

A: It depends on the deal. If the acquiree’s pre-purchase market value is around $4 billion (let’s say that amounts to a $40 share price), and it’s purchased for $5 billion (or $50 per share), the stock price will likely jump on the news, typically to around the purchase price per share (in this case, $50).

Companies are often bought at premiums to their market value, especially when they have desirable technology, patents, growth prospects and so on. In such cases, the acquirer may have to outbid other interested parties. It’s different for struggling companies; they might be bought for relatively little when their stock prices are depressed.

Meanwhile, if investors are bullish about the acquisition, the acquiring company’s own price might also rise. But if many believe that it overpaid or that it won’t see a good return on its investment, its price can fall. It all depends on investor expectations and reactions to the deal. Some acquisitions turn out to be brilliant moves, while others are regretted.

Q: Can I give my grandchildren small gifts of stock? If so, how? — C.C., Tacoma, Washington

A: You can open custodial brokerage accounts for your kids and invest through them, or you might open direct stock-purchase or dividend reinvestment plan accounts. (Learn more about the latter by typing this wacky address into your browser: bit.ly/2Rjc5Qj.)

Some companies, such as GiveAshare.com and Stockpile.com, specialize in selling single shares (or fractions of shares) that are typically meant to be gifts. Be sure to focus on companies that kids know and like, such as Apple, Starbucks, Netflix or Nike.

Fool’s School

Books on Business and Investing

To be a successful investor, you should read not only books about investing, but also books on business. After all, you’re investing in businesses, and it helps to understand how great ones thrive — and sometimes fail. Check out these titles:

¯ “Influence: The Psychology of Persuasion” by Robert Cialdini (Harper Business, $19). This classic will serve you in many facets of your life as it digs deep into marketing. It can help you to be a better salesperson and to defend yourself against companies’ marketing efforts.

¯ “Business Adventures: Twelve Classic Tales From the World of Wall Street” by John Brooks (Open Road Media, $19). Highly recommended by both Warren Buffett and Bill Gates, it offers 12 instructive business stories from the 1950s and 1960s, about companies such as Ford and Xerox.

¯ “Against the Gods: The Remarkable Story of Risk” by Peter Bernstein (Wiley, $22). This eye-opening book covers a lot of history — from the ancient Greeks onward — tackling topics such as probability, math, risk, gambling and the vast insurance industry.

¯ “The Effective Executive: The Definitive Guide to Getting the Right Things Done” by Peter Drucker (Harperbusiness Essentials, $18). Learning about essential practices of great managers can help in investing — and in your career, too.

EDITOR’S NOTE: The Motley Fool is an investment column created by brothers David and Tom Gardner and distributed by Andrews McMeel Syndication.