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Consider a stock that exists for an infinite number of years. At the end of each year, the stock pays a dividend of $10. Suppose
Consider a stock that exists for an infinite number of years. At the end of each year, the stock pays a dividend of $10. Suppose the discount rate r is 5%. What is the price of the stock? Suppose the stock price consists of two components: a fundamental component and a bubble component. That is where the fundamental component Pr, satisfies D.. is the dividend payment at time t+-it is a random variable at time -and r is the discount rate. Show that the bubble component must satisfy 1+r
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