See Figure 17.6 Below

question 42

Essay

See Figure 17.6 below.
Also, as begins to fall, it becomes a self-fulfilling prophecy and investment falls too.
Figure 17.6: I/Y Ratio and the FFR (Source: Federal Reserve Economic Data, St. Louis Federal Reserve)
-Write down the equation for the stock price. Use this equation to answer the following:
(a) Your stockbroker calls to tell you she has a great deal on a stock. She gives you the
following information: the real interest rate is 4 percent, the capital gain on this stock is 3.5
percent, and it pays $2.50 in dividends. How much should you pay for this stock?
(b) The next day she calls back and tells you about another stock that is for sale (i.e., the
market price) for $75. She does not know the dividend growth but she does know the
dividend payment, $0.35 per share, and the real interest rate, 4 percent. For you to buy
this stock, how much annual dividend growth should you expect at that price?
(c) A hot stock tip comes from a friend. The price of the stock is $50, the dividend gain is 2.5
percent, and you know the real interest rate from your previous two discussions with your
broker. How much of a dividend payment will you want?

---

Definitions:

Growth Group

A group designed to support the personal or professional development of its members, focusing on skills enhancement, emotional growth, or educational achievements.

Education Group

A collective of individuals who come together for the purpose of learning, exchanging ideas, or gaining knowledge on a specific subject.

New Information

New Information refers to data, facts, or insights that were previously unknown and have recently been discovered or revealed.

Policy Issues

Matters or problems that require attention or action within the framework of public or organizational guidelines.