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

  1 assume that the market demand is given by pq 100 - q and

1. assume that the market demand is given by pq 100 - q and that the cost functions of the two firms in the industry

  His cost structure is shown on the accompanying table

Joe Brown’s dairy operates in a perfectly competitive marketplace. Joe’s machinery costs $500 per day and is the only fixed input. His variable costs are comprised of the wages paid to the few workers he employs at the dairy and the grain he feeds to..

  What happened for stock c during the period

What happened for stock C during this period? Calculate the price-weighted index value at time 0 and at time 1 assume the divisor for time 1 is 2.35. What is the rate of return if you use price-weighted method?

  How does a government budget deficit affect the economy

What were the reasons for the deficits during those time periods and how does a government budget surplus affect the U.S. economy?

  Describe a product that you are familiar with

Describe a product that you are familiar with and outline its market structure - Using at least one of the techniques described in the article, discuss how you would price the product in order to maximize profits.

  What is prisoner 1s dominant strategy

Two suspects are arrested and charged with a crime. The police lack sufficient evidence to convict the suspects, unless at least one confesses. The police hold the suspects in separate cells and explain the consequences that will follow from the a..

  Problem 1 the annual demand d for a new cvj video camera

problem 1 the annual demand d for a new cvj video camera can be described by d 2000 2p where p is the retailers

  What concept from behavioral economics explains the behavior

Many people give to charity and leave tips. What prediction does utility theory make about each of these activities? Think of the person's narrow self-interest.

  Whats interesting or helpful about the given view

What's interesting or helpful about this view? What would I notice if I believed this view? In what sense or under what conditions might this idea be true?"

  Explian about a firm operating monopolistically in a market

The problem belongs to Economics, mainly to Micro-economics and it converse about a firm operating monopolistically in a competitive market ends up with super-normal profit with advertisement.

  Effects of the researched issues on healthcare industry

Analyze the most significant economic effects of the researched issues on healthcare industry. Provide at least two (2) examples of these issues to support your response.

  What role does derived demand play

Using the search feature available at the OOH Web site at http://www.bls.gov/ oco/, search several occupations. What factors seem to be affecting employment prospects in those fields? What role does derived demand play? How about technological cha..

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