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2. Mr. GOOD buys Company BAD's stock. At to, the price of the stock is $100 per share. At ti, Company BAD pays $20 dividends,
2. Mr. GOOD buys Company BAD's stock. At to, the price of the stock is $100 per share. At ti, Company BAD pays $20 dividends, and the price of Company BAD's stock decreases to $90. (a) What is the rate of return? Does Mr. GOOD get a capital gain or a capital loss? What is the dividend yield? (b) If the spot rate of return is 10%, what is the present value of this stock investment? (C) Suppose Company BAD pays $20 dividends at t, and the stock can be sold only at t2. What price at t2 can guarantee Mr. GOOD a non-negative net present value
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