If Professor Siegel is correct that stocks are less risky than bonds, then the risk premium on stock may be zero. Assuming that the risk-free interest rate is 2.5 percent, the growth rate of dividends is 1 percent and the current level of dividends is $70, use the dividend-discount model to compute the level of the S&P 500 that is warranted by the fundamentals.
Instruction: Round your response to 2 decimal places.
The level of the S&P 500 is
Answer:
Dividend discount model:
Price= D(1+g)/r-g
g=growth rate 1%
r= as given in question risk free rate 2.5%
D₀= $70
D₁=$70(1+0.01) with growth rate
Solution:
70(1+0.01)/(0.025-0.01)
=$4713.33
Answer:
Demographic and buyer behavior characteristics.
Explanation:
- Studying a market can be very difficult, so, sometimes researches choose random sample to study. The question arises that weather these sample represents the whole targeted market or not.
- And that should be judged carefully, if not the study will be an utter failure.
Answer:
a. The Shares of common stock outstanding are 556,200
b. The stated value of the common stock is 3
c. The par value of the preferred stock is 102
Explanation:
a. In order to calculate the Shares of common stock outstanding we would have to make the following calculation:
Shares of common stock outstanding=shares authorized-common shares
=564,000-7,800
=556,200
b. In order to calculate the Stated value of the common stock we would have to make the following calculation:
Stated value of the common stock= shares issued/shares authorized =1692000/564000
=3
c. In order to calculate the Par value of the preferred stock we would have to make the following calculation:
Par value of the preferred stock= shares issued and outstanding/6,500
=663000/6500
=102
Answer:
Explicit costs are the costs which requires the money to pay.
On the other hand, implicit costs refers to the benefit that is foregone by choosing some other work or doing some other activity.
Therefore,
Explicit costs are as follows:
1. Wages pays to his hired hand
2. Buys feed for his cows.
3. Gas expense that is used in truck
Implicit costs are as follows:
1. Foregone income of $27,000 from working at a dairy plant as a technician.
2. Time taken for extracting milk from all the cows.
Answer:
Cash provided by the financing activities $3,600
Explanation:
The computation of the cash flows from financing activities is as follows;
Cash flows from financing activities
Additional short-term borrowings $20,000
Less cash dividend paid -$16,400
Cash provided by the financing activities $3,600
The purchase of short term stock should be shown in the investing activities while on the other hand the interest paid is to be shown in the operating activities
