Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 31, Problem 3E
To determine
To explain:
The impact on Company B's stock price.
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Students have asked these similar questions
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.
Question 12: Mad Max Inc. has a dividend policy that increases annual dividends by 3% each year. If last year's dividend was $2.50, the company intends to stay in business for 50 years, and an investor wants a 11% return, what would be the price of Mind Max stock?
Explain briefly why stock prices are a leading economic indicator.
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Similar questions
- Suppose you expect a stock to pay a dividend of $10 every year forever and the discount rate is fixed at 5%. What would expect the price of that stock to be? What happens to the price of the stock if the discount rate falls to 2%? (Note: this exercise might help explain why the stock market is so high these days, despite the COVID-19 pandemic and lackluster economy.)arrow_forwardTSC, Inc. sells for $23 and pays an annual per share dividend of $2.50, which you expect to grow at 7 percent. What is your expected return on this stock? What would be the expected return if the price were $40 a share? Round your answer to the two decimal places.arrow_forwardYour bank account pays an interest rate of 4 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay a dividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment?arrow_forward
- The relationship between a bond and its price is easier to determine than the relationship between a stock and its price.True or Falsearrow_forwardWe have had similar reductions in stock prices to those in 1929 before and after the Great Depression. What historical events took place that directly led to the prolonged depressed conditions like those of the 1930s?arrow_forwardRegarding the previous page, consider you and your partner are planning to become a franchise of an international food chain (L’Osteria, Subway, ...) and think about the following problems: • What impact do you think current economic conditions have on your investment plan • Explain the nature and the current status of risks involved in your plan.arrow_forward
- Suppose that you have bought a total of 3400 shares of stock of a particular company. You bought 1300 shares of stock at $17 per share, 1000 shares of stock at $12 per share, and the remaining shares at $22 per share. What is the average price you paid per share of stock? (please round your answer to 2 decimal places)arrow_forwardBecker Financial recently declared a 2-for-1 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?arrow_forwardCalculate the value of change in stock if opening stock is $340 million and the closing stock is $460 millionarrow_forward
- What would be the effect of increased demand for the company's stock?arrow_forwardWhat happens to interest rates in the market if the stock brokerage commission declines? Explain the reason for your answer!arrow_forwardStock A has a price of $60 per share and you own 360 shares. Stock B has a price of $250 per share and you own 65 shares. What is the weighted average stock price in your portfolio? Round to 2 decimal places and do not include the dollar sign.arrow_forward
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