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2. (Efficient Market Hypothesis) A stock purchased at $P provides an annual dividend of $D. a. How do you make a forecast of its price
2. (Efficient Market Hypothesis) A stock purchased at $P provides an annual dividend of $D. a. How do you make a forecast of its price next year? b. What is the rate of return if it were to sell at forecast price next year? c. There is new information about the stock and the market believes that its rate of return will be above the equilibrium rate of return from similar stocks, show using Demand and Supply analysis the impact of this information on the current price of the stock. d. Explain the impact on the rate of return of the stock using the new current price. e. Compare the rate of return in (d) with the equilibrium rate of return. 2. (Efficient Market Hypothesis) A stock purchased at $P provides an annual dividend of $D. a. How do you make a forecast of its price next year? b. What is the rate of return if it were to sell at forecast price next year? c. There is new information about the stock and the market believes that its rate of return will be above the equilibrium rate of return from similar stocks, show using Demand and Supply analysis the impact of this information on the current price of the stock. d. Explain the impact on the rate of return of the stock using the new current price. e. Compare the rate of return in (d) with the equilibrium rate of return
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