2. Shares in Brothers Grimm Inc., manufacturers of gingerbread houses, are expected to pay a dividend of
Question:
2. Shares in Brothers Grimm Inc., manufacturers of gingerbread houses, are expected to pay a dividend of $5.50 in one year and to sell for $99.00 per share at that time. How much should you be willing to pay today per share of Grimm: (LO1) a. If the safe rate of interest is 5.1 percent and you believe that investing in Grimm carries no risk? b. If the safe rate of interest is 10.1 percent and you believe that investing in Grimm carries no risk? c. If the safe rate of interest is 5.1 percent but your risk premium is 2 percent? d. Repeat parts a–c, assuming that Grimm is not expected to pay a dividend but the expected price is unchanged.
Step by Step Answer:
Principles Of Macroeconomics
ISBN: 9781264250356
8th Edition
Authors: Robert Frank, Ben Bernanke, Kate Antonovics, Ori Heffetz