Risk premium suggested by the current price of the stock

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Reference no: EM131346259

A stock that sells for $100 entitles you to a yearly dividend of $4. (D0 in the textbook) You estimate that the growth rate of dividends is about 2% per year. Suppose that the risk free yield on government bonds is 2%.

i. What is the risk premium suggested by the current price of the stock?

ii. How your answer change if the price of the stock jumps to $150.

Is the following statement True, false or uncertain? Justify your answer.

“By abolishing limited liability of shareholders of joint stock companies, the corporation would be able to borrow more at higher bond prices”

What are the advantages of holding stock in a given company versus holding bonds issued by the same company?

Why is a booming stock market not always good for the economy?

Reference no: EM131346259

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