I. 1) Suppose you buy one share of stock for $50 and sell it for $100. Your profit is $50. If that happens within a year, your rate of return is an impressive 100%! If it takes six years, what would be the average annual rate of return on your investment? As lo-5. 5o

I. 1) Suppose you buy one share of stock for $50 and sell it for $100. Your profit is $50. If that happens within a year, your rate of return is an impressive 100%! If it takes six years, what would be the average annual rate of return on your investment? As lo-5. 5o

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 12P

See similar textbooks

Related questions

Q: What is the present value of a payment of $5,000 at the end of one year and a second payment of…

Q: If a commercial bank offers a loan of $1,400 and the borrower will repay the loan with probability…

A: A repayment plan is a structured repaying of funds that have been loaned to an individual, business…

Q: Suppose a bond pays $10 after the first year as coupon payment, and $10 plus the face value of $200…

A: Given interest rate = 10 % Bond face value = 200 $ Coupon payment for 2 years = 10 $

Q: If a one - year bond is purchased for $700 and the interest rate (its yield) is 5 percent, what will…

A: Interest rate is the fixed rate amount that a lender charges from the borrower to use its money.

Q: Y= C+I+G C= 500 + 0.8(Y-T) I = 300 G= 700 T= 0.25Y Refer to Table 27-1. What is the level of…

Q: An insurance company has just launched a security that will pay $150 indefinitely, starting the…

A: Present value (PV) is the current value of a future stream of cash flows given a specified interest…

Q: Page 184 The following figure shows plots of monthly rates of return and the stock market for two…

A: Diversification is the strategy to minimize loss by invest money in several securities through…

Q: Suppose that Nancy lives for three periods and chooses to be a Dentist. This means that she will…

A: Given: Interest rate=10%

Q: Maria runs a catering business from her home. All of the food for her business is prepared in her…

A: Net investment is gross investment adjusted for depreciation of the capital stock.

Q: 10. Assume that apple tost 0.93 euro in year 2002 and 1.4 euro in year 2007, while orange cost 1.4…

A: here we calculate the CPI by using the cost of basket of the different years and choose the correct…

Q: expectancy of 20 years. Suppose that the discount rate is 20%, that electricity can be purchased at…

A: The marginal cost is the change in the total cost that arises when the quantity produced is…

Q: The King of France offers you an investment opportunity that would pay you $40 per year forever. If…

A: Answer: Given, Periodic return = $40 Yield to maturity = 4% = 0.04 The following formula will be…

Q: If a $1,000 bond has a coupon rate of 11% and the market interest rate falls to 7%, what would a…

A: Given: The value of a bond is = $1,000 The rate of coupon is = 11% The market rates fall to = 7% To…

Q: Twelve years ago, an investor bought a certain number of shares of stock for which he paid P100 per…

A: Given: The number of stocks purchased 12 years ago is = P100 per share The dividend received for the…

Q: A coupon bond will make 20 annual coupon payments of $5,000 each and will pay a face value of…

A: The annual coupon value is $5000. percentage of face value=5000100000*100=5% The coupon rate is…

Q: Suppose you buy a share of stock for $20 and sell it for 40. Then your profit is $20. If that…

A: Initail Investment = $20Final Value of investment = $40Time 10 yearsAnnual average profit = (40 -…

Q: At the end of 2007 a student has $200 in a bank savings deposit that is earning an interest rate of…

A: Given future worth(FW) = $400 Present worth(PW) = $200 Rate of interest (R)= 5% to calculate number…

Q: 9. In how may months will a loan of P2.M be paid if the monthly payment is P94,146.94? Select the…

A: Loan amount=2000,000 Monthly payment= P94,146.94

Q: 30. CAPM and Cost of Capital. Suppose the Treasury bill rate is 4% and the market risk premium is…

A: a. when Beta is 0.75 cost of capital = Risk free rate + Beta*(Market risk premium) = 0.04 +…

Q: Sam is considering investing in a bond with a face value of $20,000. The bond pays an interest of 4%…

A: Answer:- (B) $15,355.40

Q: How would we compute the present discounted value of payments of $8,000 received thre years in the…

A: The present discounted value gives the amount of dollars that an individual is willing to invest for…

Q: Assume that l = 0.25% and that lt 0. If the one-year interest rate is 5% and the two-year interest…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: 10. How much are you willing to pay for one share of XYZ bank stock if the company just paid a 1.5$…

A: Given: The annual dividend paid by a company is = $1.5 annually The dividends increase by = 3%…

Q: 5. Suppose after you graduate from Algoma University, you find a job that pays you $75,000 a year.…

A: Case-1 no.of years n=30years=30*12=360months Interest rate (i) =3.5% per year = 0.35/12 = 0.00292…

Q: You buy a house for $210000, and take out a 30-year mortgage at 6% interest. For simplicity, assume…

A: Please post B part separately. Answer A is step 1

Q: Assume that /21 = 0.30% and that / = 0. If the one-year interest rate is 5% and the two-year…

A: Liquidity premium = 0.30% One year interest rate = 5% Two year interest rate = 5.75%

Q: If Tim borrows $600 from a payday loan operator and has to pay S775 at the end of 1 month, how much…

A: First, we need to find out the monthly interest rate and need to apply the same for a year on the…

Q: You buy a share of stock that pays $5 in dividends for the next 5 years and nothing after that. If…

A: The formula for the present value is: P = FV(1 +R)tP: Present ValueFV: Future ValueR: Rate of…

Q: If the discount rate on 3-month commercial paper is 4.9% while the yield on 3-month CDs is 5%, the…

A: Discount rate: The rate of return used to discount future cash flows back to their present value is…

Q: Suppose total disposable income in Country X rises by $500 billion while total saving rises by $80…

A: Disposable income is the measure of cash that an individual or family needs to spend or save after…

Q: Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per…

A: If annual hours are H, then PW of cost = PW of revenue 2,000,000 = (300 x 0.20 x H) x P/A(10%, 20)…

Q: Assume that l2t = 0.15% and that t = 0. If the one-year interest rate is 5% and the two- year…

A: Given Liquidity premium for 2 period bond at time t (l2t)= 0.15% One year interest rate at today's…

Q: Consider a closed economy for which GDP is equal to 22,000, taxes are equal to 7,000, consumpta…

A: In a closed economy there is no trade with other countries thus net export equals zero.

Q: Assume that a farmer has $223,500 in Total Assets and $90,500 in Owner Equity, faces a 15% income…

A: The Return on assets ratio is a type of profitability ratio that indicates that how much a company…

Q: Refer question 1 and answer both the questios Question 1 Afrm raises capital to invest in a…

A: Revenue for a firm can be defined as the sum total of money that the firm earns by selling the goods…

Q: At the end of 2009 a student has $700 in a bank savings deposit that is earning an interest rate of…

A: Given, Year Principle (P) = $700 Rate of interest (r) = 3% per year Amount (A) = $1400 To find,…

Q: The median annual growth in the stock index is 7%. Which of the following annual stock index growth…

A: Here answer is “12.9 %”

Q: What is the value of n with interest 10% that makes the present value equal to O 100 100 loee Given…

A: PV = 1000 Annuity Amount = 100

Q: 14. If consumption function is given by : C= 100 + 0.8Yd , then MPS equal О a. 0.8 O b. 8 O .2 O d.…

A: Consumption is the spending or expense which is incurred for the purpose of utility by the consumer…

Q: A $1,000 bond pays an interest of $50 each year for 20 years. The bond will mature at the end of 20…

A: here we calculate the rate of return , investor receive by calculating the given cashflow , and…

Q: Suppose that you obtain a mortgage loan of 100.000 IL. Annual rate of interest is 12% and the…

Q: Assuming that the is 0.50? O $7,000 O $5,000 O $3,000 O $4,000

A: Equilibrium Income=$4000 full employment income =$8000 full employment income is more than…

Q: Suppose that you make a series of annual deposits into a bank account that pays 10% interest. The…

A: Interest rate(i) 10%/annumAmount Increased by 300 each yearNumber of years (n) = 5

Q: Assume that ly = 0.50% and that lt = 0. If the one-year interest rate is 5% and the %3D two-year…

A: Given information Liquidity premium on a 2-year bond l2t=0.50% One year interest rate it=5% and two…

Q: What is the downside of using prizes to promote the creation of new technology? O It slows the…

Q: Assume that l2t = 0.15% and that l = 0. If the one-year interest rate is 5% and the two-year…

A: Given Liquidity premium l2t=0.15% and l1t=0 One year interest rate it=5% Two-year interest rate…

Q: Jacob manages a cloth manufacturing firm. He is deciding whelher of nol machinery costs $45,000…

A: Net present value (NPV) is the difference between the present value of cash inflows and the present…

Q: Al approximately what interest rate, i, will a present investment of $2000 increase to a future…

A: Answer; Correct Option is (a) 7%

Q: Assume that l2t = 0.15% and that l1t = 0. If the one-year interest rate is 5% and the two-year…

A: We have l2t=0.15%, l1t=0it=5%, i2t=5.75% Here it is today's interest rate on one period bond and…

Question

1) Suppose you buy one share of stock for $50 and sell it for $100. Your profit is $50. If that
happens within a year, your rate of return is an impressive 100%! If it takes six years, what
would be the average annual rate of return on your investment?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

When do firms receive money from a stock sale in their firm and when do they not receive money?
Suppose you buy a share of stock for $10 and sell it for $20; your profit is thus $10. If that happens within a year, your rate of return is an impressive 100% ($10/$10 = 1). If it takes five years, what would be the rate of return on your investment? (See Figure.)
After careful analysis, you have determined that a firm’s dividends should grow at 15%, on average, in the foreseeable future. The firm’s last dividend was $1.5. Compute the current price of this stock, assuming the required return is 20%
Carnes Cosmetics Co.'s stock price is $60, and it recently paid a $1.25 dividend. This dividend is expected to grow by 27% for the next 3 years, then grow forever at a constant rate, g; and rs = 14%. At what constant rate is the stock expected to grow after Year 3? Do not round intermediate calculations. Round your answer to two decimal places.
What is the difference between (Fair Market Price) and (Current Market Price)? I struggle to understand how both relate to the (Required Rate of Return) and (Expected Rate of Return). Please correct me if I am wrong, my understanding is that if Fair Market Price is greater than the Current Market Price on security/stock, then I should buy more. In contrast, I have to sell when it's vice versa. I would appreciate it if you could illustrate with examples, i.e., numbers.
Suppose a bank offers you the following two year, non-cashable GICs (i.e., withdrawals are not allowed). The first one pays a monthly rate of return 0.245%, the second one pays a semi-annual rate of return of 1.47% and the third one a return of 2.75% for the first year and 3.25% for the second year. All interest payments are reinvested.(a) Which investment would you prefer?(b) Suppose you expect that interest rates decline to 3% after the first year. How does your answer change, if the two year GIC pays out the first interest payment (but not the principal) at the end of the first year?
Susie Lee won a lottery. She will have a choice of receiving $25,000 at the end of each year for the next 30 years, or a lump sum today. If she can earn an annual return of 10 percent on any investment she makes, what is the least she should be willing to accept today as a lump-sum payment? (Round to the nearest hundred dollars.) Use the NPV as you have equal cash flows of $25,000 for the next 30 years.
Calculate the value of a stock that is expected to pay a constant dividend of $1.05per year if the required return is 11%.
Suppose that you, on 1st of January 2023, enter a long position in a 10-year forward contract on a non-dividend-paying stock. The stock price is $50 and the risk-free rate of interest is 5% per annum with yearly compounding (as per 1st of January 2023). a) What are the forward price and the initial value of the forward contract? Five years later, 1st of January 2028, the price of the stock is $60 and the risk-free interest is still 5%. b) On 1st of January 2028, what are the forward price and the value of the forward contract that you entered into on 1st of January 2023? Explain. c) Suppose that you on 1st of January 2028 enter a short position in a forward contract on the same underlying stock and with expiration date in 5 years. What is the value of your total position? (I.e. what is the total value of the long position in the forward contract in a) and your short position). What is the payoff of your total position at maturity? d) On 1st of January 2028, what is the value…
You expect a share of EconNews.Com to sell for $71 a year from now and to pay a $3 dividend per share in one year. What should you pay (rounded to the nearest dollar) for the stock today if you require an 6 percent return?