If the price elasticity of demand for used cars priced between $4,000 and $6,000 is -0.9 (using the mid-point method), what will
1 answer:
Answer: 36% increase in quantity demanded.
Explanation:
Price Elasticity shows the change in quantity demanded when there is a change in price.
Change in Quantity demanded = Price elasticity * Change in price.
Change in price using midpoint formula;
Change in Quantity demanded = -0.9 * -0.4
= 0.36
= 36% increase
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Hi, we first have to establish the dividend for the first 3 years and the dividend when the growth rate falls off to a constant rate of 8% with the formula to find the present value of a perpetuity with constant growth rate. From there, we need to bring all the above cash flows to present value and that is the price of the share. The formula is as follows.
To find D1, D2,and D3, we have to do this.
D1=Do(1+0.19)
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Since 0.19 is the growth rate for 3 years. Everything should look like this
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