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Stock prices and the risk premium
Suppose a share is expected to pay a dividend of $1,000 next year, and the real value of dividend payments is expected to increase by 3% per year forever.
a. What is the current price of the stock if the real interest rate is expected to remain constant at 5%? at 8%? Now suppose that people require a risk premium to hold stocks.
b. Redo the calculations in part (a) if the required risk premium is 8%.
c. Redo the calculations in part (a) if the required risk premium is 4%.
d. What do you expect would happen to stock prices if the risk premium decreased unexpectedly? Explain in words.
Assume that the mean hourly cost to operate a commercial airplane follows the normal distribution with a mean of $2,425 per hour and a standard deviation of $195. What is the operating cost for the lowest 4 percent of the airplanes.
a young investment manager tells his client that the probability of making a positive return with his suggested
Suppose 500 people were surveyed, and of those 500, 450 were working full time. Of the 50 not working, 10 were full-time college students, 20 were retired, 5 were under 16 years of age , 5 had stopped looking for work because they believed there w..
What are the potential downfalls of project crashing?
Explain how each of the following is a form of price discrimination:a. a student discount at the movie theater b. long-distance phone service that costs 15 cents per minute for the first 10 minutes and 5 cents per minute after 10 minutesc.
A medium sized city is considering offering exclusive rights to CableNet, a cable television carrier. The demand function for cable in this city is: P= 28- 0.0008Q; The resulting marginal revenue function is: MR = 28 - .0016Q ; Cablenet's marginal co..
"Historians and archaeologists will one day discover that the ads of our time are the richest and most faithful daily reflections any society ever made of its whole range of activities."
in an examination of purchasing patterns of shoppers a sample of 16 shoppers revealed that they spent on average 54 per
The human resource manager of the XYZ Company makes the followingclaim: "Our workers make an average of $500 per week. Weproduce $8000 worth of output each week using only 10 workers.
1. How do you know that the firm represented in the graph above is a purely competitive firm 2. To maximize profits, this firm will produce at what output level (one letter) 3. Explain why this MR=MC position is the profit-maximizing position for any..
During his first year at school, Ximing buys eight new college textbooks at a cost of $50 each. Used books cost $30 each. When the bookstore announces a 20% price increase in new texts and a 10% increase in used texts for the next year, Ximings fa..
Assume the demand and supply equations are the same as those givenin Question 11. Now assume the government introduces either aspecific excise tax of T=2 (i.e. $2) per unit, or an ad-valorem tax rate of t=0.2 (i.e. 20%).
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