ngs Review View Help Acrobat E 21 AaBbcd AaBbCI AaBbCel AaBbc AaBbcc Heading 3 1 Normal 1 No Spac... Heading 1 Heading 2 Paragraph Styles 1. Question Number One worth 25 points total Recently, the US stock market experienced deep declines and extreme volatility because of concerns about the COVID-19 virus pandemic. For example, the Dow Jones Industrial Average (DJIA) declined from almost 30,000 in mid-February to less than 20,000 by mid-March. This was a decline of over 33%. Since that time the DJIA has rebound to around 24,000 (or about 20%). Let us assume that the DJIA simply represents an index of all stock prices. And, let us assume that the Venture Capital Valuation Method works well for estimating the DJIA. That is, assume that: DJIA - VCF (R-8), where VCF is an estimate of the annual constant growth venture cash flow per year forever. "R" is the discount rate for the DJIA. In addition, "g" is the growth rate of the annual venture cash flow. a) Based on the DJIA equation above, and that "R" and "g" are expected to remain the same, what does a 33% drop in the DJIA infer about the US stock market expectations about VCF? [worth 5 points) b) Suppose VCF is expected to decline by only 10% (to a value of 2.500), and "R" is expected to remain constant at 20%, if the DJIA is 20,000 what is the value of "g"? (worth 10 points) Search Be 04 16 2020 - Word ailings Review View A Help Acrobat 21 AaBbcd AaBbcc Aabbcc AaBb C AaBbcc Heading 3 1 Normal 1 No Spac... Heading 1 Heading 2 ber Paragraph b) Suppose VCF is expected to decline by only 10% (to a value of 2500), and "R" is expected to remain constant at 20%, if the DJIA is 20,000 what is the value of "g"? (worth 10 points) c) What does the increase in DJIA volatility mean for the "R" in the DJIA equation? What does it mean for the "g" in the DJIA equation? (worth 10 points] Page 2 of 6