In the situation shown in exhibit 16-3, how could the fed return the economy to potential output?
1 answer:
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Answer:
Intrinsic value: $ 45.19290274
The stock is undervalued as is selling for less.
Explanation:
We use the gordon model to solve for the intrinsic value of the share.
we must solve for the grow rate like it was an interest rate:
<u>grow rate: </u>
g = 0.046804808
<u>dividends one year from now:</u>
3.16 x (1 + 0.046804808) = 3.307903193
Now we calculate the instrinsic value:
Value: $ 45.19290274
The stock is undervalued as is selling for less.