Answer:
The answer is 9.00%
Explanation:
real risk-free rate = 3.00%
average expected future inflation rate = 5.90%
Maturity risk premium = 0.10%
The expected rate of return on a 1 year treasury security would be = the average expected future inflation rate + maturity risk premium + real risk-free rate.
= 3.00% + 5.90% + 0.10%
= 9.00%
Explanation:
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Solution:
The most common tool used to measure the valuation of the stock is the ratio of price to earnings. It's easy to access, and the data is readily accessible. The P / E ratio is determined by measuring the price of the stock by the sum of its 12-month trailing profits.
Given,
Dividend of $0.11
Expected stock sales price of $60
RRR 10%
The current price of the stock would be : 60 * 0.10 * 0.11 = 66
Answer and Explanation:
Given that Bond A pays $4,000 in 14 years and Bond B pays $4,000 in 28 years, and that the interest rate is 5 percent, we see that Using the rule of 70, the value of Bond A is 70/5 = doubled after 14 years. Now if its value is 4000 in 14 years, its current value must be halved. Hence the value is 2000.
Sinilarly the value of Bond B is approximately one fourth now because it pays 4000 in 28 years. Hence its value is 4000/4 = 1000.
Now suppose the interest rate increases to 10 percent. Hence the doubling time is 70/10 = 7 years
Using the rule of 70, the value of Bond A is now approximately 1,000 and the value of Bond B is 250
Comparing each bond’s value at 5 percent versus 10 percent, Bond A’s value decreases by a smaller percentage than Bond B’s value.
The value of a bond falls when the interest rate increases, and bonds with a longer time to maturity are more sensitive to changes in the interest rate.
