Answer to Question #67914 in Macroeconomics for Chris

Question #67914
Q1] A corporation's stock promises to pay a dividend of $5 next year and investors expect the price of this stock next year to be $31. Because of the risk associated with this stock, investors require a rate of return of 20 percent from it. The price of this stock in the stock market is ( )dollars. No comma, dollar sign, or decimal places. Q2] There are two assets in the market. They both promise to pay $1,120 next year. Asset A is less risky and carries a rate of return of 12 percent. The risk premium on Asset B is 16 percent. Therefore, Price of Asset A = ( ) dollars Price of Asset B =( ) dollars. No commas, decimal places, or dollar signs.
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Expert's answer
2017-05-03T09:04:08-0400
Q1] P=5/0.2
p=25
Q2] A)P=1120/0.12
P=9333
B) P=1120/0.16
P=7000

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