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Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions:
The investor's required rate of return is 13 percent
the expected level of earnings at the end of this year is $4
the firm follows a policy of retaining 40 percent of its earnings
the return of equity (ROE) is 14 percent and
similar shares of stock sell multiples of 8.108 times earnings per share
Now show that you get the same answer using the discounted dividend model
A. the stock price using the P/E ration valuation method is $
Describe the axioms of utility, what is the expected utility of wealth from taking the gamble and what is the Certainty Equivalent Wealth?
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