1. You hold a winning ticket from your provincial lottery. It entitles the bearer to receive
payments of $50,000 at the end of each of the next 20 years. Given what you know
about the time value of money, you should be able to sell this ticket for no le
1. If the rate at which you can invest is 0%, the value today of $1 to be received in the
future is less than $1.
2. The future value will increase the longer the period of time.
3. The present value will increase the higher the ra
1. Assume you are considering two bonds identical in every way but for coupon
frequency-bond A pays interest annually, and bond B pays interest semi-annually.
Then, if they have the same price, the yield-to-maturity on bond A will always be
If one uses the perpetuity model to value stock, one assumes that P0 = P1 = . . . =
, implying that the annual return from owning the stock is zero.
Learning Objective: 08-01 How stock prices depend on future dividends and
Clusters and the New Economics of Competition
Michael E. Porter
Now that companies can source capital, goods, information, and technology from around the world, often with
the click of a mouse, much of the conventional wisdom about how companies and natio