Discuss the Effects on the Current Price of a Stock

question 47

Essay

Discuss the effects on the current price of a stock from each of the following:
a) An increase in the growth rate of the dividend;
b) A decrease in the risk-free interest rate;
c) An increase in the equity-risk premium; and finally
d) A decrease in the annual dividend.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity or volume of operations in a business.

Fixed Costs

Fixed charges that are unaffected by changes in production volume, including rental fees and payrolls.

Variable Cost Curve

The variable cost curve shows the relationship between total variable cost and the level of a firm's output, demonstrating how costs fluctuate with changes in production.

Factor Prices

The prices paid for the use of factors of production such as land, labor, and capital, which influence cost of production and economic decisions.