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PCh7 - Econ 520(Spring 2007 Problems for Chapter 7 Masao...

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Econ 520 (Spring 2007) Problems for Chapter 7 Masao Ogaki 1. Mishkin°s Problems Mishkin, p.176, Questions and Problems: 4, 6, 8, 10 2. Multiple-Choice Problems Choose the one alternative that best completes the statement or answers the question. (Note: Just for the purpose of interpreting questions in terms of stock markets in reality, keep in mind that S&P 500 was 1,418.3, its level of divi- dend was 25.10, its level of earnings was 82.0, and its P/E ratio was in 2006. Historically, the real interest rate has been about 1% and the risk premium for S$P 500 has been about 6%. The in°ation rate (measured by CPI) has been about 2%, the dividend have grown at about 9%, and the earnings have been grown at about 11% since 2002. The average real GDP growth from 1960 to 1973 was about 4.2%, the real GDP growth from 1974 to 2006 was about 3%.) 1. Imagine the dividend per share for a stock paid over the last one year is $25.10, that dividends are expected to grow at 5%, and that the required rate of return for the stock is 9%. What will be the current price of this stock if there is no bubble? A) 770.2 B) 658.9 C) 621.3 D) 596.4 E) 565.7
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