Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 17, Problem 8RQ
To determine
The determinants of the price-earnings ratio of a stock.
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Chapter 17 Solutions
Macroeconomics (Fourth Edition)
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- Suppose that the initial dividend on a stock is £1. The interest rate is 3 percent and the growth rate of dividends is constant at 2 percent. What is the price of the stock?arrow_forwardWhat are some of the major factors affecting the stock price?arrow_forwardA company has announced a profit, but why is the price of stock still falling? Is the market inefficient? Explain.arrow_forward
- Why might a company’s stock price fall after record earnings are announced? Conversely, why might the stock price increase after losses are disclosed?arrow_forwardIn 350 words or less Explain how Random Walk Theory makes it difficult for investors to make short run decisions. Create an example to illustrate this difficulty.arrow_forwardGive your opinion on the current situation of stock market right now. Would it be profitable to invest in stocks?arrow_forward
- Consider two firms (a) Firm A has profits twice as large as Firm B's profits. The firms do not differ in any other way. Which firm's stock should you buy if Firm A's stock price is PA = $50 and Firm B's stock price is PB = $30? What would you expect to happen to stock prices in equilibrium? Explain your answer (b) Suppose stock prices are in equilibrium. Explain what happens to the stock prices of these two firms if the interest rates increase? (c) Suppose stock prices are in equilibrium. Does the Efficient Market Hypothesis suggest to %3D buy one stock or the other stock? Explain.arrow_forwardFortune magazine regularly publishes a list of the “most respected” companies. According to the efficient markets hypothesis, if you restrict your stock portfolio to these companies, will you earn a better-than-average return? Explain.arrow_forwardWhat is an economically meaningful corporate event from a shareholders’ ownership perspective? a. stock buyback b. stock split c. stock dividendarrow_forward
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