Compute the value of the stock according to simple theory

Assignment Help Microeconomics
Reference no: EM131634669

Question: Pricing stocks: Suppose the initial dividend paid by a stock is $10 per year. Let the interest rate and the growth rate of dividends be given by the table below:

389_7.png

(a) For each case, compute the value of the stock according to the simple theory developed in the chapter.

(b) What happens as the growth rate of dividends gets closer and closer to the interest rate? Why?

(c) What does this imply about using a plot of the price-earnings ratio in the stock market to identify bubbles or the mispricing of individual stocks?

Reference no: EM131634669

Questions Cloud

How we tackle some of the global issues : In what ways is state power changing? What are the implications of these changes for how we tackle some of the global issues?
Explain how different individual ethical perspectives : explain how different individual ethical perspectives can be reconciled to account for the ethical expectations of most businesses
What happens to the desired capital stock : Total factor productivity and investment: Suppose the TFP parameter, A, increases permanently.
Why do you think this would be important for your company : Reflect on concept of branding. Why do you think this would be important for your company? How did the products build the kinds of reputations they enjoy today?
Compute the value of the stock according to simple theory : Pricing stocks: Suppose the initial dividend paid by a stock is $10 per year. Let the interest rate and the growth rate of dividends.
Describe the concept of terrorism by investigating : Describe the concept of terrorism by investigating the struscture, strastegies and goals of international terrodrist groups
The round-trip ticket between two of your favorite locations : have been tracking the fares charged for a round-trip ticket between two of your favorite locations
Write an essay about the hillary clinton vs donald trump : Write an essay about the Hillary Clinton vs Donald trump. Discuss about the essay topic in detail.
Define as the performance of the contract : Buyer and Seller are citizens of United States and Vietnam respectively. Both countries have adopted the CISG. However, as the performance of the contract

Reviews

Write a Review

Microeconomics Questions & Answers

  Draw demand curve and corresponding marginal revenue curve

Draw the demand curve and the corresponding marginal revenue curve. Add a marginal cost curve so that the profit-maximizing price of a Giorgio's pizza will be $14. Add an average total cost curve so that the profit on each pizza is two dollars. Il..

  What is the size of the labor force

Suppose the number of employed people in an economy is 121,166,640. The unemployment rate in this economy is 10.4 percent, or .104, and the labor force participation rate is 72.5 percent, or .725.

  Define the terms individualism and associationalism

Define the terms “individualism,” “associationalism” and “corporatism” as approaches to the political activity of business compare and contrast.

  Write a paper on e-portfolio and reflection on contemporary

Write a paper on E-portfolio and reflection on contemporary Australian society. The related topics are: Australia: Culture, history and politics. Globalising the Australian economy and The Australian envirnoment.

  Explain failure of one bank can lead to runs on other banks

Because of asymmetric information, the failure of one bank can lead to runs on other banks. During the boom years of the 1920s, bank failures were quite.

  Tax is most likely to increase tax revenue in a market

A decrease in the size of a tax is most likely to increase tax revenue in a market with

  Examining facts-reversed causality

A hypothetical study examines the operations of a couple of hundreds medical clinics, with the data for amount of expenses for new medical equipment relative to total expenses in particular year(s), and the amount of revenue per physician in subse..

  What will be the trade balance in each country

What is GDP in each economy? If the total value of GDP is consumed and no country borrows from abroad, how much will consumers in each economy spend on each of the goods?

  What is enterpreneurship

When we think of entrepreneurship, we often think of small, start-up firms. Describe how a large corporation in an established industry can be "entrepreneurial" and discuss how Peng's entrepreneurial strategies apply in this situation.

  Excplain failure of the super committee is good for economy

The problem from economics and it is explain The failure of "Super Committee" and the consequences have been discussed in the answer.

  Fiscal policies such as the recent pay-roll tax cut

Fiscal policies such as the recent pay-roll tax cut, may result in all of the following, except

  What price is demand unit elastic

Determine the price elasticity of demand at prices $5, $6, and $8 for Qd = 600 - 2P2 , At what price is demand unit elastic?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd