According to the Hotelling Principle,the Price of an Nonrenewable Resource

question 161

Multiple Choice

According to the Hotelling Principle,the price of an nonrenewable resource is expected to

• A) fall slowly over time.
• B) fall at a rate equal to the interest rate.
• C) fluctuate randomly.
• D) rise at a rate equal to the interest rate.
• E) remain constant over time.

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Definitions:

Shareholders

Shareholders are individuals or entities that own one or more shares of stock in a public or private corporation, granting them certain rights such as voting on corporate matters and receiving dividends.

Buying and Selling

The basic act of trading or exchanging goods, services, or financial instruments, such as stocks or currencies.

Bird-In-The-Hand Theory

Assumes that investors value a dollar of dividends more highly than a dollar of expected capital gains because the dividend yield component, D1/P0, is less risky than the g component in the total expected return equation rs = D1/P0 + g.

Dividend Yield

A financial benchmark that illustrates the relation between a company's per annum dividend issuance and its share price.