EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9781305465626
Author: Blinder
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 9.A, Problem 1TY
To determine
Explain the safer investment.
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Your bank account pays an interest rate of 4 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay a dividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment?
Is common stocks or bonds best for a high risk firm? Why?
What will happen if two assets are earning the same expected return, but one is more risky than the other?
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- What will happen if two assets are earning the same expected return, but one is riskier than the other?arrow_forwardWhich of the following describes the attribute of a risk neutral investor? Select one: a. An investor that makes decisions based on the advice of financial planners. b. An investor that makes decisions based on the expected return of assets. C. An investor that makes decisions based on the credit rating of assets.arrow_forwardWhy would versification over purchasing one stock? Please provide a detailed example.arrow_forward
- Why may different analysts arrive at different intrinsicvalues for the same stock?arrow_forwardFind out change in stock if closing stock is $60,000 and opening stock is $34,000?arrow_forwardRobert Shiller and Eugene Fama who were jointly awarded the Nobel Prize in Economics in 2013 for their work on asset prices strongly disagree on whether I. stocks can be over or under priced. II. investors are rational. III. asset bubbles exist. Multiple Choice Only II I, II, and III Only I I and II Only IIIarrow_forward
- The relationship between a bond and its price is easier to determine than the relationship between a stock and its price.True or Falsearrow_forwardSavings is a stock variable True/Falsearrow_forwardShould a person who is risk-averse hold a portfolio with no stock and only bonds? Explain.arrow_forward
- How would you describe the relationship between a risky investment and the return on that investment (think stocks or retirement accounts)? a casual or limited relationship there is no relationship between the level of risk and the return you get on your investment a direct or positively correlated relationship an inverse or negatively correlated relationshiparrow_forwardYou have done the BCG matrix analysis of your portfolio and observed that you have a question mark brand in the energy drink market. Thinking about the conditions what could you do to make it become a star ?arrow_forwardYou have $1,000 that you can invest. If you buy Ford stock, you face the following returns and probabilities from holding the stock for one year: with a probability of 0.2 you will get $1,500; with a probability of 0.4 you will get $1,100; and with a probability of 0.4 you will get $900. If you put the money into the bank, in one year’s time you will get $1,100 for certain. a) What is the expected value of your earnings from investing in Ford stock? b) Suppose you are risk-averse. Can we say for sure whether you will invest in Ford stock or put your money into the bank?arrow_forward
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