EBK PRINCIPLES OF ECONOMICS
7th Edition
ISBN: 8220102958395
Author: Mankiw
Publisher: CENGAGE L
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Chapter 27, Problem 4PA
To determine
Present value.
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Your bank account pays an interest rate of 8 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay adividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment? Support your answer with calculations.
Your bank account pays an interest rate of 4 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay a dividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment?
The relationship between a bond and its price is easier to determine than the relationship between a stock and its price.True or False
Chapter 27 Solutions
EBK PRINCIPLES OF ECONOMICS
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- What is a bond? A certificate representing a loan from an investor to a corporation or government entity that makes fixed payments for a set time and eventually pays back the loan in full. A certificate of ownership in a corporation with the right to a percentage of the earnings. A payment for an investor to a corporation for the rights to future profits. A group of stocks sold together for a set price.arrow_forwardThere’s no penalty for withdrawing funds from investments before they mature. True or falsearrow_forwardWhich of the following refers to the interest payments of the bond? *A. Coupon BondB. Present ValueC. Coupon RateD. Discount Ratearrow_forward
- Why do most investors hold diversified portfolios?arrow_forwardIn which two markets can you buy stock? Compare and contrast these two markets. What is an IPO?arrow_forwardWhat advantage do you have if you begin investing for retirement at a young age? There is no advantage to starting to invest for retirement at a young age, a long time to take advantage of the time value of money, a guaranteed investment portfolio, a short time to take advantage of the time value of moneyarrow_forward
- 11. Case study a. Let's say your friend offer simple investment. You are planning to buy an asset for RM 3350. This investment is very safe. You would sell off the asset in three years for RM 400. You know you could invest RM 335 elsewhere at 10 percent with very little risk. What do you think of the proposed investment?arrow_forwardSusie works two jobs so she can pay tuition without using loans, helps her sick mother with housework and errands, and is attending college. She knows she should be saving for retirement. Which strategy is best for Susie? Select one: a. Auto-invest a small fixed amount in a low-cost S&P 500 index fund every month b. Buy shares of the top 5 performing stocks every month. Switch which companies she's investing in based on their monthly performance c. Wait until she's got more disposable income to invest -- if she starts now, she won't be investing enough to make it worthwhile d. Pick one company's stock -- maybe her favorite store or restaurant -- and invest the same amount every montharrow_forwardwhich kind of shares would you expect to pay higher average return: shares in an industry that is very sensitive to economic conditions (such as an automaker) or shares in an industry that is relatively insensitive to economic conditions (such as water company)? why?arrow_forward
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