Answer:
the expected rate of return of the junk bond = 17%
Explanation:
the expected rate of return of the junk bond = (return if the company makes a profit x probability of the company making a profit) + (return if the company makes goes bankrupt x probability of the company going bankrupt) + (return if the company breaks even x probability of the company breaking even)
the expected rate of return of the junk bond = (40% x 0.3) + (0 x 0.2) + (10% x 0.5) = 12% + 0 + 5% = 17%
When valuing a stock using the constant-growth model, D1 represents the next expected annual dividend. The constant-growth model is formally known as the Gordon Growth Model. This model shows the intrinsic value of stock based on dividends in the future if they are growing at a constant rate. Instrinsic value is the value of something based on anaylsis without accounting for the market value.
If oil, which is a major input to most production processes, abruptly in price, the impact on the economy would be similar to a productivity decrease, with a resultant decrease in real GDP.
Given an incomplete sentence related to oil which is a major input in the production of goods.
We are required to fill the sentence with the appropriate effect.
When there is increase in the prices of oil there will be increase in cost of the production and there will be decrease in supply of goods and as a result real GDP also decreases.
Real GDP is basically the GDP which is measured on the basis of prices of previous year.It reflects change in units of product and neglect the increase in prices of products.
Hence if oil, which is a major input to most production processes, abruptly in price, the impact on the economy would be similar to a productivity decrease, with a resultant decrease in real GDP.
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The best way to characterize David's agency relationship is:
- D. David is a special agent since he is only responsible for one property at a time with limited duties.
<h3 /><h3>Who is an Agent?</h3>
This refers to a person who represents another person and their interests when dealing with the buying or selling of property.
With this in mind, we can see that because David is a licensed agent, he represents homeowners but has limited authority when working with clients and his agency relationship is one that he is a special agent since he is only responsible for one property at a time with limited duties.
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Based on my knowledge of inflation and its redistribution of purchasing power, I would advise my older parents to embark on Plan B by <u>purchasing a business</u>.
<h3>How does inflation redistribute purchasing power?</h3>
Inflation redistributes purchasing power by giving less value to lenders and savers than to borrowers and investors.
The purchasing power of a fixed money plan decreases. On the other hand, the purchasing power from variable investment changes with inflation.
A business would also increase its value over time more than a fixed investment.
Thus, based on my knowledge of inflation and its redistribution of purchasing power, I would advise my older parents to embark on Plan B by <u>purchasing a business</u>.
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