You believe that a corporation's dividends will grow 5 percent on average into the future. The corporation just paid a dividend of $5 per share and its stock has a current price of $75. Using the Gordon growth model, (a) what is the implied required rate of return for the stock?
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- Over the next three years, the expected path of 1-year interst rates is 4,1, and 1 percent. Today you buy $1 of one-year bond and when it matures you plan to use the money you receive to reinvest in one-year bond again. Then your expected rate of return for this $1 investment is _____% (round to the nearest integer). If the expectations theory of the term structure is true, then your expected rate of return for buying a two-year bond today is ____%, which implies that the current interest rate on 2-year bond must be ____%Show graphically how the capital stock will respond to(i) a permanent increase in output price;(ii) a temporary investment tax credit scheme that rebates a fraction r of the value ofinvestment.Assume that the real risk-free rate is r* = 2% and the average expected inflation rate is 3% for each future year. The DRP and LP for Bond X are each 1%, and the applicable MRP is 2%. What is Bond X’s interest rate? Is Bond X (1) a Treasury bond or a corporate bond and (2) more likely to have a 3-month or a 20-year maturity? SHOW WORK AND USE FINANCIAL CALCULATOR
- Over the next three years, the expected path of 1 year interest rates is 1, 2, and 1 percent, and the 1-year, 2-year, and 3- year term premia are 0, 0.2. and 0.5 percent, respectively. Using the information, if the expectations theory of the term structure is true, then your expected rate of return for buying a two-year bond today over the next two-year is ____% (round to the nearest integer).Suppose that conditions in the economy are such that the after-tax expected real interest rate is described by the equationRa = a X gWhere a is a number that depends on how people value their consumption in one period compared with another period, and g is the growth rate of the economy. The a equals 1 when people prefer consumption to be balanced, with the same amount of consumption each period; a may be bigger than the one when people prefer consumption today over consumption in the future, with a being larger and larger the more impatient people are:A - Suppose that a = 2, g = 0.02, the inflation rate is expected to be steady at pi = 0.03, and the tax rate is .40. What are the values of the equilibrium nominal interest rate and the before-tax expected real interest rate?B - Beginning with the situation in part a, if the growth rate of the economy increases to .04, what are the new values of the equilibrium nominal interest rate and the before-tax expected real interest rate?C -…Suppose that conditions in the economy are such that the after-tax expected real interest rate is described by the equationRa = a X gWhere a is a number that depends on how people value their consumption in one period compared with another period, and g is the growth rate of the economy. The a equals 1 when people prefer consumption to be balanced, with the same amount of consumption each period; a may be bigger than the one when people prefer consumption today over consumption in the future, with a being larger and larger the more impatient people are:D - Beginning with the situation in part a, if the expected inflation rate declings to 0.01, what are the new values of the equilibrium nominal interest rate and the before tax expected real interest rate?E - From these results, what general conclusions can you draw about the relationship between the nominal interest rate and the rate of economic growth, the tax rate, and the inflation rate? what about the relationship between the before…
- Suppose that a firm begins at time t=1 with a capital stock of K(1)= 200,000 and, in addition to replacing any depreciated capital, is planning to invest in new capital at the rate I(t)=50,000t*-3/2 for the forseeable future. Find the planned level of capital stock T years from now. Will this firm’s capital stock grow without bound as T -> ∞ ? Explain using a graph.Consider the market for loanable funds. Suppose the demand for loans is given by i= 40-Q+π, and the supply of loans is given by i= -30+Q+π, where π represents inflation. In the case of π=5, what is the equilbrium quantity of loans and what is the corresponsing interest rate? Q*=70, i*=45 Q*=10, i*=35 Q*=35, i*=10 Q*=45, i*=70(FINANCIAL MARKET AND EXPECTATION) a. Name three independent variables that affect stock prices and explain how these independent variables affect stock prices. b. If the Government is conducting an expansionary monetary policy, how will it affect stock prices? Draw the IS LM curve. c. The number of online video viewers increases dramatically during this pandemic time. How would this tendency affect the stock price of online video companies? What variable of the stock price determination will be affected in this case?
- If Im looking at an infinite period model and im told my dividend is always 0 at every period, would my nominal stock price always be zero?suppose that we have identified three important systematic risk factors given by exports, inflation, and industrial production, in the beginning of the year, growth in these three factors is estimated at -1%, 2.5%. and 3 5% respectively. However, actual growth in these factors turn out to be 1%.-2% ,and 2%. the factor betas are given by bex= 1.8, b1=0.7, and bip=1.0. 1. lf the expected return on the stock is 6%, and no unexpected news concerning the stock surfaces calculate the stock's total return 2. calculate the stock's total return if the company announces that they had ab accident and the operating facilities will be closed down for some time thus resulting in a loss by the company of 7% in return. 3. what would the stock total return be if the actual growth in each of the facts was equal to growth expected? assume no unexpected news on the company.Over the next three years, the expected path of 1-year interest rate is 4, 1, and 1 percent. Today if you buy $1 of one-year bond and when it matures you use the money you receive to buy another one-year bond, then your expected rate of return for this $1 investment is ____% (round to the nearest integer). If the expectations theory of the term structure is true, then it implies that the current interest rate on 2-year bond must be ____% (round to one decimal place x.x)