Lecture 6

A yes b no most important idea we want to use the rate

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Unformatted text preview: y a lower rate of return than what they can get elsewhere investing in “comparable” projects • Is Apple’s decision to pay a dividend bad news for Apple’s future prospects? What “r” should I use for calculating NPV? • What have we seen? Interest rates on Treasury Bonds move a lot (from below 2% to over 15%) • Real (inflation adjusted) interest rates on Treasury Bonds vary too (we will see from 4% to -1%) • Average Rate of return on the stock market (inflation adjusted) is 6.5% or more • • • We will see next class that the interest rates on corporate bonds can vary a lot too So what are we to do? Use the “r” investors are demanding on “comparable” projects • But what makes a project “comparable” ? • When does the project deliver cash to the investors? (Today’s lecture)...
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This note was uploaded on 11/11/2013 for the course ECON 106F taught by Professor Atkeson during the Fall '05 term at UCLA.

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