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:
competitive bid.
Explanation:
This is an example of competitive bid.
Answer:
$5,000
Explanation:
The return on investment is 20%
= 20/100
=0.2
The average operating assets is $100,000
The minimum required rate of return is 15%
= 15/100
= 0.15
The first step is to calculate the net operating assets
= ROI× average operating assets
= 0.2×100,000
= $20,000
Therefore, the residual income can be calculated as follows
= Net operating income-(minimum required rate of return×average operating assets)
= $20,000-($100,000-0.15)
= $20,000-15,000
= $5,000
Hence the residual income for the year was closest to $5,000
Answer:
$0.45
Explanation:
Given that
Desired lot size = 60
Annual demand = 40000
Holding cost = 20 per unit
Daily production rate = 320
Workdays per year = 250
Recall that
S = (Q^2 H[1 - d/p])/ 2d
Where S = setup cost
D = annual demand
Q = order quality
P = daily production
Seeing that daily demand is not given. We find d
d = 40000/250 = 160
Therefore
S = [60^2 20( 1 - 60/320)] / 2 × 40000
S = 3600 20 ( -1.12)/ 80000
S = $0.45
C as time is a cost they chose to spend to attend this concert when they could've used their time more efficiently with other things.
