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Unformatted text preview: Original price 1031.8, price after 1 year = 1470.3, return = 0.424 4. Fast and easy questions a. Why the ‘accounting earnings’ are not used to compute the value of a firm? b. The loss in value suffered by the stocks in the last weeks, did it happen in the primary or secondary markets? c. If the bailout increases inflation, will the price of the bonds increase or decrease, explain? Formulas Price of a stock with initial dividend Div, dividend growth g and discount rate r g r Div P= Price of a bond N N N r F r r r c p ) 1 ( ) 1 ( ) 1 ) 1 (( + + ++ = Where c is the coupon, N is the number of years, r is the YTM, F is the face value and p is the price Relationship between real and nominal rate and inflation r = R + π Return 1 P P P...
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This note was uploaded on 03/04/2009 for the course MGMT 310 taught by Professor Matthewjamesbarcaskey during the Spring '08 term at Purdue.
 Spring '08
 MATTHEWJAMESBARCASKEY

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