You Are Given the Following Data Assume That a Highly Liquid Market Does Not Exist for real

question 14

Multiple Choice

You are given the following data: $\begin{array}{llcc} \text {r*= real risk-free rate } &4\%\\ \text {Constant inflation premium } &7\%\\ \text {Maturity risk premium } &1\%\\ \text { Default risk premium for AAA bonds } &3\%\\ \text { Liquidity premium for long-term T-bonds } &2\%\\\end{array}$
Assume that a highly liquid market does not exist for long-term T-bonds, and the expected rate of inflation is a
Constant.Given these conditions, the nominal risk-free rate for T-bills is
, and the rate on long-term Treasury
Bonds is .

• A)4%; 14%
• B)4%; 15%
• C)11%; 14%
• D)11%; 15%
• E)11%; 17%

Identify and calculate fixed and variable production costs.

Recognize the concept and implications of diminishing returns to labor.

Determine the conditions under which a firm operates at the minimum point of average total cost (ATC).

Understand the concepts of economies and diseconomies of scale and their relationship with the cost curves.

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Definitions:

Plowing Back

Refers to the strategy of reinvesting profits back into the business instead of distributing them as dividends.

Constant Growth DDM

The Constant Growth Dividend Discount Model (DDM) is a method to value a company's stock by assuming constant growth in dividends per share and discounting them back to present value.

Intrinsic Value

Intrinsic value is the inherent, true value of an investment, regardless of its current market price.

Dividends

Distributions of earnings paid to shareholders by a company, typically out of its profits.