Question
Please help me to solve these questions. Kindly solve all parts its my request. All are linked. This is money and banking class. Question 1
Please help me to solve these questions. Kindly solve all parts its my request. All are linked. This is money and banking class.
Question 1
1. a. Suppose you purchase a stock for $40 dollars. The stock promises a required return of 8% and the corporation plans to increase the dividend by 5% each period. What is the value of the time zero dividend?
1. b. What must be the price of a stock that pays a $5 dividend in period 1 and whose difference between its dividend growth rate and required return is 1%?
1.c.
Investor | Stock Price ($) |
Harry | 6.25 |
Garry | 13.21 |
Larry | 8.50 |
Suppose there are three investors, Harry, Garry, and Larry, who are interested in purchasing a stock in a produce firm. Their willingness to pay is dictated in the stock price column and depends on factors such as prior knowledge, experience in investment, etc. What would be the range of possible prices for this stock in this market?
1.d. Under rational expectations, what is the expected price next period of bond that costs $500 with an annual coupon payment of $25 and an equilibrium return rate of 10%?
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